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Diversify away from the dollar, says Tendulkar (not Cricket)

Suresh Tendulkar questions Indian dollar reserves:

Suresh Tendulkar, economic adviser to Indian’s Prime Minister Manmohan Singh, is urging the government to diversify its foreign exchange reserves and hold fewer dollars, he said today.

“The major part of Indian reserves are in dollars — that is something that’s a problem for us,” Tendulkar said in an interview in Aix-en-Provence, France today.

He also said that world currencies need to adjust to reflect trade imbalances.

India imports 2 million barrels of oil a day. That’s about $52 billion at todays rates, and $73 billion at $100 per barrel. We currently have $254B in reserves. Even if we had to pay two years of oil in USD, we could do it with $150B.

Diversifying away from the dollar can only mean buying a currency that is likely to be stronger – which one? Euro? Not a chance. Yen? Uh, no. Chinese Yuan? Maybe but they have to accept it back as trade currency.

I say keep a year of oil, and find a way to convert those dollars to rupees instead. I don’t know how – but it should be possible to give those dollars out and use it to generate rupees; buying infrastructure technology, thorium reactors (hint, hint) or such foreign goods and use them up. Or, let Indians invest much more abroad, and they’ll figure out a way to diversify. Of funding countries such as Iceland, and demanding back rupee based interest and principal at then applicable conversion prices. It could be done by letting Indians invest on margin (currently disallowed) in markets abroad, which will additionally bring stability to Indian commodity prices from the cross-hedging.

It’s time to make the rupee convertible, too.

Now if Indians can be allowed to borrow in dollars, and get those fantastic interest rates, life might be a lot easier; heck, we could even apply for the PPIP in the US, we’re very happy to get non-recourse loans at 16x leverage, thank you. If they’ll let us, that is.

  • maurya says:

    >Hi Deepak,
    Between Gold and Oil, which one do you think better hedge for Dollar.

  • GG says:

    >I say buy Gold with it. Gold's purchasing power is going to literally skyrocket in the coming years. Even with the seemingly high price right now, it is the most undervalued asset on the planet, besides probably silver. Plus, it is be the international reserve currency of the future since nothing else even comes close in matching it's stability. SDR's? Bah! It is just another paper illusion composed of other equally worse paper illusions. China isn't buying Gold for no reason. It is the wave of the future.

  • kvv says:

    >Hmmm – time to make a contrarian bet on the dollar being strong for the next year atleast.

  • maurya says:

    >What is SDR?