- By Mandar Pitale
The global economic slowdown triggered by the coronavirus has started hurting the global economy. The collapse in the global oil price and heavy falls in equity markets have created new uncertainty. The recent fall on global stocks markets highlights the fragility of an economy still mired in recession. However, in this tough situation, the impact is also seen in the currency market. The Indian rupee recently hit a record low of 74.50 against the US dollar, breaching previous low of 74.48, hit in October 2018. The rupee has been sliding against the US dollar as emerging market currencies feel the heat of global risk-off sentiment.
A falling Rupee against the US Dollar plays spoilsport, especially, for Indians planning to travel abroad, hits the budget of parents looking to send their children for overseas education. Not just that, the domestic hospitality sector also bears the brunt of high import prices of certain food and liquor items.
For the uninitiated, the Indian Rupee has depreciated around- 65 per cent in the past ten years against the US Dollar. As a generation that has imbibed global aspirations, such weakening rupee, most of the times leads to higher pay-outs or direct losses – especially when the liabilities or payments need to be met or made in US Dollar.
However, despite the depreciation in the currency, the dollar remittances by Indians have increased over this period. As more and more Indians travel abroad for leisure, employment, business, studies, medical treatment, etc. or continue to invest in global markets, assets or instruments – the demand for US Dollars will continue to strengthen.
The outward remittances from India have increased 10 times in the past 4 years alone! Indians remitted US$ 13.78 billion to overseas destinations in 2018-19 under the Liberalised Remittance Scheme (LRS).
Under LRS, the Reserve Bank of India allows resident individuals to remit up to US$250,000 in a financial year, outside India, under various heads including current account transactions such as going overseas on employment, leisure travel, higher education, emigration, maintenance of close relatives, medical treatment among others. At the same time, under the scheme, resident individuals can transfer money for certain capital account transactions viz. purchase of property, investment in stocks, making investments in venture capital funds, mutual funds, etc. The scheme also allows a lesser-known option under permissible capital account transactions by an individual – that of opening of foreign currency account abroad with a Bank. However, the process is mostly reserved for the elite clients and often leads to high waiting time.
Given the complexities, there is another way offered by limited banks in India to help their customers wade through such challenges. Take Checking accounts, for instance. Checking accounts are used to differentiate or segregate the money meant to be used as expenses and that meant for savings. Checking accounts can be a simple solution to not only protect your money in light of outward liabilities – but what makes them even special is efficient process and never before seen flexibility.
Banks offer US checking account – which is designed as a native bank account that allows the resident individual the flexibility to meet the dollar-denominated payments and investments with a click of a button. Subsequent to completion of KYC, the account holder would not only get a full-fledged bank account in India with exclusive features – competitive interest rates and preferential rates of currency transfers, etc., subject to completion of the KYC as per the regulatory requirement.
This simple checking account allows ease of access as well as an inbuilt mechanism to mitigate the foreign currency risk. The account holder can maintain a balance in USD or any preferred currency and can use the same for foreign currency honouring foreign currency payments or investments overseas. This also means that as the checking account is based overseas (Mauritius in our case), thus insulated from adverse exchange rate movements and doesn’t dent the allocations made to meet the foreign currency denominated liabilities.
Banking is all about simplifying the problems that customers may face towards achieving their financial goals. Making money smarter enough to preserve its value despite the environment is just one small step. But nonetheless a significant one.
- Mandar Pitale is Head – Treasury of State Bank of Mauritius (India). Views expressed are the author’s own.