BOMBAY: The US dollar has bounced back against the Indian rupee in the unofficial market after a mild setback suffered earlier following the announcement of general elections.

The quotation for the US dollar in the illegal market had dropped from Rs 20.75 to Rs 20 soon after the announcement of the polls on October 17 and remained stuck at that level for about a fortnight. But much to the surprise of observers of the market scene, the quotation suddenly sprang to Rs 21.50 during the last one week on hectic renewed buying of the American currency in the unofficial market.

Heavy inflow

The earlier fall in the value of the dollar was attributed first to expectations of heavy inflow of the currency back which politicians have squirreled away in numbered accounts in foreign banks. And these expectations seemed to come true when large amounts of the American currency was reported to have found its way back into the country for conversion into Indian rupees during the last week of October and first week of Nov ember. On rough calculations any where between US dollar 100 to 200 million is stated to have been brought back after the announcement of the poll.

According to some Congress men, a leading politician in Maharashtra brought in a sizable quantity of dollars but instead of converting all of them into rupees he is reported to have distributed the dollars among his leading workers.

However market reports suggest that the flow of the American currency into the country through unofficial channels has come to a halt now and on the contrary there has been a renewed demand which has pushed up the value of the American currency in the unofficial market.

Unusual phenomenon

Three reasons are being advanced for the unusual phenomenon of the upswing in the value of the dollar on the event of the elections. It is common knowledge that at the time of general elections in the country the dollar takes a beating against the Indian rupee in the unofficial currency market.

Firstly, it is pointed out that the ruling party is reported to have collected a sizable amount of rupee funds from trade and industry sources at home. And hence there was no need to bring in large American currency into the country.

Secondly it is said that some politicians have reportedly with the help of smugglers resorted to bringing in gold clandestinely and converting the metal into rupees. Hence the selling pressure in the unofficial dollar market came down noticeably. Thirdly, it is believed that some politicians belonging to the ruling party have been buying back the American currency to stash away in their numbered accounts abroad as they are afraid of the Congress (1) losing the elections this time.

Linked to poll

To what extent these factors have contributed to the renewed upswing in the value of the dollar is anybody’s guess, but it is certain that there has been a noticeable buying in the American dollar during the last one week. “As there is no economic factor behind this renewed rise, it has something to do with political events,” points out a leading observer of the foreign currency market scene.

Article extracted from this publication >>  December 1, 1989