Eshwar Profile picture
2 May, 7 tweets, 3 min read
Continuation of previous series


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,


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,

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

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 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.

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!


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.


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