The United States has intensified its commercial war in a monetary war by seeking apparently to boost the dollar to boost exports. It is a different matter that, as a global reserve currency, there are some limits for the steep devaluation of the dollar. An excessively devalued dollar threatens the financial stability and trust of investors under the mine, especially in the United States Treasury bonds. China, with its strategic depreciation of RMB, has increased confrontation.
Meanwhile, the credibility and the reservation status of the dollar face increasing scrutiny, aggravated by the persistent commercial deficit of the United States, which Ironically also supports its state of reserve currency. The continuous problem is spilled worldwide, raising acute challenges for emerging economies such as India. Capital flight, inflation and complex policies dilemmas are growing risks. As the world sails with the instability driven by the United States, it becomes vital to decode the Washton’s devaluation plays and elaborate the strategic response of India to the weather any monetary storm.
Devaluation strategy
Trump’s devaluation strategy is a calculated combination of monetary influence, commercial aggression and geopolitical signage, designed to reposition the US dollar as a tool or economic crafts. First, Trump persistently persisted to the Fed to reduce interest rates, arguing that a strong dollar harms the competitiveness of the export of the United States and promotes imports and debt. His vocal campaign influenced market expectations, weaving the dollar.
Second, the Administration raised the idea of direct intervention of the currency market, such as selling dollars and buying foreign coins to deliberate induce depreciation. Designed not executed, this policy option revived historical precedents such as the 1985 Plaza Agreement, when the United States coordinated with the G5 nations to weave the dollar and correct structural commercial imbalances. The discussion has indicated a certain intention to financial markets.
Third, Trump’s reciprocal rates gambit created the uncertainty of the global market, triggering financial market accidents, associated capital outputs in the midst of investor repositioning and currency volatility. These conditions undermine the relative force of the dollar, aligning with their devaluation ambitions.
Fourth, Trump plans to take advantage of the ‘diplomacy of the exchange rate’ to press the commercial partners to negotiate better terms. This was part of a set of broader protectionist tools to reverse commercial deficits, revive the manufacture of the United States and interrupt the commercial alignments of the State. Although it is strategically bold, this multifaceted approach entailed risks, such as inflation, reprisals of commercial partners and the erosion of confidence in the global reserve state of the dollar. Chinese intention and actions against reciprocal rates are a sign that the road is not so easy for us, as anticipated.
Play Book of India
The depreciation of the dollar, promoted by Trump’s aggressive tariff policies and the change of world financial dynamics, involves broad and complex implications for India, tension, investment, debt management and monetary strategy. As the dollar weakens in the midst of American protectionism and global capital realignments, Indian policy formulators must adopt a nuanced and specific approach to the sector to take advantage of emerging opportunities while mitigating vulnerabilities.
In commerce, the immediate effect is advertiser for Indian exports. The United States is the largest export destination in India, and a Waker dollar reduces the competitiveness of the prices of Indian goods and services in that market. This is especially worrying for the ITES sector, which obtains more than 60 percent of its customer income from the United States. Indian exporters can face billing pressures, renegotiations and reduced margins, especially in sectors such as engineering, pharmaceutical and textiles, commercial surpluses with the United States.
However, if the euro, Yen or Libra appreciate more than rupee, exports to Europe and Japan could become more competitive and partial compensation for the US relationship.
On the import front, the situation is more favorable. Crude oil, which constitutes more than 20 percent of the import basket of India and has a price in dollars, becomes cheaper in terms of rupees such as weak in dollars. This reduces import invoice, facilitates inflation and strengthens macroconomic indicators such as the balance of the current account. Imports of capital goods, high -end technology and semiconductor components can also become more affordable, which supports the objectives of initiatives such as Make In India and PLI. Even so, imports from Europe or China could become more expensive if these currencies earn more than rupee, creating mixed results.
In terms of external debt, the Indian corporations and financial institutions that have important liabilities called dollars, estimated at around $ 717 billion by March 2025, benefit from the lowest debt service costs and the curvency profits. This improves corporate balances and increases potency credit ratings. However, a widely fabric dollar could trigger capital outflows from emerging markets, increasing indebtedness costs and risk premiums. Therefore, companies may face greater risks of refinancing and could resort to internal debt or instruments backed by sovereign as alternatives.
The services and remittance economy are also affected. The depreciation of the dollar reduces the value of the rupe of internal remittances, which exceeded $ 129 billion in 2024, which affects the consumption of households in heavy states of remittances such as Kerala, Punjab and Andhra Pradesh. Simultaneraursly, the RBI experiences valuation losses in its heavy dollar reserves. To cushion this, reserve diversity in gold, euro, yuan, and fostering bilateral ruptures of rupees, especially with Russia and the United Arab Emirates, becomes critical for defolarization and financial sovereignty.
Finally, capital markets can witness FII’s outputs in the medium of portfolio re -quail, which leads to the volatility of equity and increased bond yields. Infrastructure projects that depend on foreign currency loans face risks of increasing currency mismatch, underlining the need to develop robust coverage tools and deepen national bond markets.
Advance
India should strategically respond by improving commercial diversity, promoting rupee trade agreements, reinforcing national bond markets and increasing currency shock absorbers. As the global order changes towards the multipolarity of the currency, the economic resilience and the strategic forecast of India will determine how well it adapts and affirms autonomy in emerging financial architecture.
Ram is a teacher/boss, and Renni is ph.d Scholar, Iift, New Delhi. The views are personal
Posted on April 15, 2025
