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Tuesday, September 03, 2013 12:26 PM

Exploring the Impossible: India Seeks to Expand Trade in Rupees; India Stock Market Sinks; Rupee Decline Continues

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The desperate act of the day comes from Foreign Minister Salman Khurshid who says India Looking to Expand Rupee-Payment System.

India is exploring possibilities of a rupee-based trade-payment mechanism with several countries, Foreign Minister Salman Khurshid said Tuesday, a move that may help stabilize the local currency and reduce the country's current-account deficit.

India already has a rupee-based payment mechanism with Iran, which was worked out by New Delhi and Tehran to skirt Western sanctions against Iran. Under that, Iranian oil would be purchased with Indian rupees, which Iran would use to buy Indian goods, which include food, drugs, consumer products and auto parts.

India imports more than three-fourths of the crude oil it requires and a depreciating rupee has increased its energy costs in the local currency, adding to the government's fuel subsidies. The Indian rupee has fallen nearly 20% against the U.S. dollar since early May.

"Our commerce [trade] minister is in touch with many countries. Let's see where it is possible," Mr. Khurshid told reporters here. "If it is possible, than it would be of help to us right now," he added.

Exploring the Impossible

The only reason Iran accepts Rupees is because of embargoes by the US and Europe on trade with Iran. As a result, Iran is shut off from trade in dollars and euros, and in a desperate move of its own is willing to accept rupees.

No one else wants the damn things including India citizens who would rather own gold. See India in Serious Trouble (and Gold at the Heart of It).

Such reality does not stop foreign ministers from exploring the impossible, and wasting more time in the process.

The real world does not stop on such foolishness. For more on the real world, please see DeLong-in-Wonderland.

Also note the Rupee itself.

Rupee vs. US Dollar

The Rupee has declined 35% against the US dollar since July 2011.

Asia Pacific Stock Market

BSE is the India stock market.

That India's Foreign Minister is on a mission to explore the impossible is sure sign that desperation has set in, and India has no idea what to do.

Mike "Mish" Shedlock

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