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Shakeup with Indian Rupee

New data out of India has shown that the rupee is now slightly easier to access than before. There were many fears for the liquidity of the currency after the government abolished the usage of the 500 and 1,000 rupee notes, and the average Indian resident did not have easy access to cash because of the fact that ATM limits had been set at 2,000 across the country. A recent announcement from Indian officials has confirmed that the ATM limit has been increased to 2,500 rupees per day. This has helped ease some of the panic going on within the country, but there is a long way to go before normalcy is restored.

Opponents of the move within India state that this move has created anarchy. Poor individuals within the nation have been impacted the most heavily, simply because they do not use the banking system. However, the government has made it clear that there is no shortage of rupees, they are just transferring to a system where it is harder to move large bills around within the nation. Again, this situation still is developing, but if you are a Forex trader, it can bring quite a bit of potential to you when it comes to profits. A fluctuating Indian rupee could be a strong opportunity.

This move was intended to crack down on corruption within the country. There are billions of dollars of unaccounted for wealth right now, and this was intended to help relieve that situation. The currency circulation laws are intended to bring money into banks where they can be exchanged for the new bills. Corruption has been a major issue within India, and when current Prime Minister Narendra Modi was elected to office, there was a pledge to end the flow of “black money” in and out of the country. Black market money accounts for as much as 20 percent of India’s gross domestic product, and this is one of the most extreme steps ever taken to curtail it.

The old bills will no longer be exchanged after December 30th, creating a whole new set of problems for the rupee after this date. Forex and binary options traders will need to be especially watchful after this date if they focus on this developing nation’s currency. There will be a lot of volatility here, even more so than what is normal with the rupee. Volatility breeds a lot of opportunity for short term traders, but if you are going to pursue this opportunity beware that things will likely be a little bit riskier than normal. However, this growing pain seems like a necessary step if the illegal trade within the country is going to come to a halt. Over the long term, there should be much more potential for both the rupee and Indian stocks. But until that point is hit, we should expect a lot of turmoil.

On a final note, it’s important to know that liquidity will be increasing after the December 30th cutoff date, and if the volatility here is not yet under control, that means even larger price swings could occur. As long as there is a strong reference point for the rupee, this should not be a dangerous move for the country as a whole, but it could be a dangerous thing for traders, especially if you use a lot of leverage or are caught on the wrong side of a short term option. With these types of trades, risk management is much more difficult. If you are risk adverse, it’s smart to wait for more stability in the currency before you attempt to trade it.

Categories: Currencies

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