Continuation of previous series
1/n
Ever wondered why USD keeps appreciating against INR. Why the shiny new phone priced in dollar keeps going up in rupee terms every year?
Let's get into the 🐇hole,
1/n
Ever wondered why USD keeps appreciating against INR. Why the shiny new phone priced in dollar keeps going up in rupee terms every year?
Let's get into the 🐇hole,
https://twitter.com/eshwar_nc/status/1345435958330552320
2/n
Inflation in Tamil is called "பணவீக்கம்" - literally meaning weakening of the money. Beautiful definition!
CPI is not a true measure of inflation (Pl read why). M2 money supply is a better measure. Let's look at India vs US M2 supply over last 10yr,
Inflation in Tamil is called "பணவீக்கம்" - literally meaning weakening of the money. Beautiful definition!
CPI is not a true measure of inflation (Pl read why). M2 money supply is a better measure. Let's look at India vs US M2 supply over last 10yr,
3/n
India M2 has increased 2.6x or 11.4% CAGR for 10 yr
US M2 has increased 2.1% or 8% CAGR for 10 yr
Rupee depreciated 4.9% CAGR in same 10 yr
Almost 70% of the depreciation of INR can be attributed by INR M2 increase over USD
India M2 has increased 2.6x or 11.4% CAGR for 10 yr
US M2 has increased 2.1% or 8% CAGR for 10 yr
Rupee depreciated 4.9% CAGR in same 10 yr
Almost 70% of the depreciation of INR can be attributed by INR M2 increase over USD
4/n
Let's say you had invested diligently 10 years ago. Did you manage to beat inflation - only marginally! The 11.4% inflation erodes your nominal growth almost completely!
Inflation is an invisible Tax!
Let's say you had invested diligently 10 years ago. Did you manage to beat inflation - only marginally! The 11.4% inflation erodes your nominal growth almost completely!
Inflation is an invisible Tax!
5/n
Let's measure the same returns in $ terms. The rupee depreciation sets us back by another 5%.
Nifty IT comprises of IT companies earning in USD, Euro - it's not surprising that they have done well in Dollar terms.
Let's measure the same returns in $ terms. The rupee depreciation sets us back by another 5%.
Nifty IT comprises of IT companies earning in USD, Euro - it's not surprising that they have done well in Dollar terms.
6/n
Even USD is looking better compared to INR. In reality their currency has also been debasing at the rate of 8% pa.
Conclusion: Very important to choose an asset that has a fixed monetary policy and cannot be debased at will! Inflation is a theft on our time!
Fin.
Even USD is looking better compared to INR. In reality their currency has also been debasing at the rate of 8% pa.
Conclusion: Very important to choose an asset that has a fixed monetary policy and cannot be debased at will! Inflation is a theft on our time!
Fin.
7/n
Disclaimer: This study doesn't include the GDP growth difference between the two economies and the trade deficit/surplus. These might play a role in determining exchange rates.
Source: tradingeconomics.com/india/money-su…
Disclaimer: This study doesn't include the GDP growth difference between the two economies and the trade deficit/surplus. These might play a role in determining exchange rates.
Source: tradingeconomics.com/india/money-su…
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