I am terrified and disgusted by economics as a subject.
The reason I started this post on such a negative note is because the topic I would like to discuss ‘exchange rate’ happens to come under the purview of economics. In spite of this aversion, this topic has been fascinating me for the past couple of months. I shall try to discuss why. ‘Exchange Rate’ is very very closely related to a passion of mine ‘Travel’. This economic phenomenon seems to be ruling my life in terms of the holidays I can afford, the time that I can take off, the amount I have to work and so on and so forth.
To quote a simple example of how exchange rate has tormented me… While working out the financial feasibility of making a round the world trip, I realised that I have to save about 5 times the amount an American does and work for 4 times the period to travel for 1/3rd the period. Also, I would probably have to save 7 or 8 times the amount a British citizen would save and work for about 6 times the period to travel for 1/4th the period. I am not getting into Australian mathematics. But, yes, it depressed the hell out of me.
So, I decided to actually go and read up on this topic. There was one very formal definition – ‘The exchange rate expresses the national currency’s quotation in respect to foreign ones’. Simple.. very simple to understand… after all, I know how much a meal costs me in Milan vs Milan subway.
I decided to search the internet for a more detailed explanation and came across a paper by Steve Saville – ‘How are currency exchange rates determined’. In this paper, he quotes another person Dr. Shostak who asserts that it is ‘purchasing power parity’ that determines currency exchange rates. Using a simplistic example, this means that if 1kg of potatoes can be purchased with 1 US dollar in the US and 2 euros in Europe then US$1 is equivalent to 2 euros, that is, the US$/euro rate should be 2. In this example it would certainly be possible for the exchange rate to move a considerable distance from 2 in either direction, but it would eventually move back to purchasing power parity (2 euros = 1 dollar).’
Woah Woah… big words.. purchasing power parity.. I am leaving this out of the picture and getting back to the basics. I have questions here. Firstly, who determines that potatoes can be purchased at 1 $ in the US and 2 Euros in Europe. The sad part is that it is probably purchased at 1/5th of a dollar and 1/10th of a Euro in India. Who decides the price of potatoes? It is not about the potatoes.. is it?
The paper then captured more gory economic jargons and concluded in a scholastic style. If the paper had been read out to a room full of spectacle sporting economic majors, they would have given a standing ovation. Unfortuantely, I (still not passed my Macro economics paper from my MBA), blissfully unaware of these phenomena, decided to close the window and get back to my own theory about exchange rates.
My theory goes as follows. It is called exchange rate philosophy in the eyes of a travel loving Indian. It is not an equation. It is a not a formula. It is a bunch of guidelines so that Indian youth can see the world.
Indians should definitely be able to do a Round the World trip without having to make choices like ‘Round the world trip’ vis a vis ‘Childs education/Purchasing a house’. I firmly beleive that we should be able to have our cake and eat it too. (There is another chapter on ‘VISA’ which will be coming up very soon, which is another completely discriminatory area I strongly protest against. Visa restrictions are not in favour of Indians traveling to places beyong Singapore or Sri Lanka.. and this has to change. Linked to this chapter on Visa is a chapter on ‘Passport renewal’ which talks about the rigmarole of getting a passport or renewing it in India.)
Indians should be allowed to fly to any foreign destination at a cost which is reasonable… Currently, it costs an arm and a leg. Comparing the same with Australians, they can do summer jobs plucking apples in some farm for 4 weeks and buy a ticket to India and enjoy a 3 month holiday. We are ok if we have to pluck apples for 6 weeks instead of 4. Looking at economics, it looks like Indians have to pluck apples for 6 years. Thats not fair.
Indians should be able to afford a meal in a foreign destination without feeling like he is contributing a weeks salary towards a plate of bread and cheese. Pretty hard bread and stale cheese that too.
Indians should be in a position to stay in a hotel and not just any cheap youth hostel/B&B, which has only one person manning the reception, the restaurant and the entire place, resulting in basically you doing your bed and cooking your own meal even on a holiday. The only time I could actually afford to stay in a nice place was when it is so far away from the city that I spent something like an air ticket from Mumbai to Delhi to travel from outskirts of Paris into the city.
Indians should definitely be able to buy souvenirs other than just postcards. And incidently, the postcards cost as much as a daily meal in India. Thats criminal.
I can go on and on… but whats the point.. nothing much is gonna change in the near future. By the time, 1 rupee = 44 dollars or 55 euros, Id probably be wearing dentures that cost as much as an air ticket now. But, I am part of the generation today and I am a bit selfish. I want to see the world. I know that I am cribbing about not being able to see Machu Pichu.. and there are people who havent even visited Matheran (coming to think of it, even I havent visited Matheran). I probably anyway spend as much on a backpack as some people spend on their annual holiday. I go out and eat a meal at a restaurant and spend as much as I pay my maid every month and I still crib that she doesnt dust the window. I just think that its all boiling down to some colourful printed paper notes… This is bloody unfair. Life in unfair.
Economics is the root cause of all evil.