I am from India and my question is related to conditions based in India which may be applicable to other countries as well.

Dollar value is gradually rising in India. I was trying to understand why. During this COVID season I was expecting the Dollar value to go down base on my below reasons and it didn't happen. I read about a little bit about it and trying to make connection between the below points to understand why.

India's usual major expense for Dollar in large scale

  1. Crude oil purchase and Defense purchase expense.

India's Rupee(currency) gain

  1. Huge remittance from US and middle east countries
  2. India's forex reserve increase because of increase in foreign remittance
  3. Crude oil prices were down before a few months due to COVID
  4. India's IT service sector performance was excellent and got many US deals worth billions.

What perplexing me are

  1. How can the foreign reserve go high without reducing Dollar exchange rates? The country holding more Dollars and still the exchange rate is high.
  2. When the main expense of Crude oil purchase was down(also demand was down) why didn't it affect the exchange rate?

1 Answer 1


Dollar is a safe heaven currency, when there is crisis or economic uncertainty like the one we are in now (i.e., Covid) most people start to hoard US dollars.

USD is the world reserve currency and it provides unmatched privilege to USA, any attempt to by pass it in international trade is fatal, you get boomed to ashes like Iraq or Libya.

  • $\begingroup$ can you please provide any sources for: "... USA, any attempt to by pass it in international trade is fatal, you get boomed to ashes like Iraq or Libya?" Please also have a look at our help center here on this site as at many other stack exchanges we have policy that "links to external resources are encouraged," This answer could be improved greatly by providing source material for its assertions $\endgroup$
    – 1muflon1
    Feb 8, 2021 at 2:00

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