Why the Indian Rupee Keeps Falling: The Long Rise of the US Dollar

Introduction

The comparison between the US Dollar (USD) and the Indian Rupee (INR) is a clear reflection of global economic power shifts. While the dollar has strengthened over the past century, the rupee has steadily weakened for multiple structural, historical, and economic reasons. This article explains the full journey—from the early history of both currencies to the present day—and analyzes why the rupee continues to depreciate while the dollar grows stronger.

Early History: Foundations of USD and INR (18th–19th Century)

The US dollar was established in the late 18th century and backed by gold and silver. During the same period, India was under British rule, and its currency system was tightly controlled by colonial administration. The Indian rupee, once silver-backed, started losing value when silver prices collapsed globally in the late 1800s, weakening India’s monetary position long before independence.

World War Era: USD Strengthens, INR Struggles (1914–1945)

World War I and World War II weakened European economies, but the US emerged stronger, building powerful industries and gold reserves. Meanwhile, India’s economy was heavily drained under British rule. The dollar’s international role grew rapidly, while the rupee’s global significance declined, setting the stage for a long-term value gap.

Bretton Woods: The Dollar Becomes Global Anchor (1944–1971)

The Bretton Woods Agreement made the US dollar the world’s reserve currency, pegged to gold at $35 per ounce. All major currencies, including the rupee, were indirectly tied to the dollar. India’s controlled economy and import dependence meant the rupee had limited global power, while the dollar became the foundation of world trade and finance.

1971 Onwards: Petrodollar & India’s Growing Import Burden

In 1971, the US ended gold convertibility, but instead of falling, the dollar strengthened through the Petrodollar system—where oil was priced globally in dollars. Countries now needed USD to buy energy.

At the same time, India’s dependence on oil imports increased dramatically. This meant:

• India had to buy more USD every year
• Rupee demand stayed weak
• Dollar demand kept rising

Dollar vs Rupee: 1980s–2000s

The US economy expanded rapidly with technological advancement, strong markets, and global influence. India liberalized its economy in 1991, but decades of low exports and high imports kept the rupee under pressure.

USD remained a global powerhouse, while INR became increasingly dependent on oil prices, foreign investment flows, and trade deficits.

Why the Dollar Is Strong Today and the Rupee Weak

Several modern factors explain the widening gap between USD and INR:

1. Higher US Interest Rates: The US Federal Reserve’s high rates attract global investment, boosting demand for USD.

2. Safe-Haven Status of USD: During global crises, investors prefer the US dollar, making it stronger. INR does not hold safe-haven status.

3. India's Trade Deficit: India imports more than it exports—especially oil, electronics, and machinery—creating constant demand for USD.

4. External Debt and Foreign Investments: India relies heavily on foreign investors. When they pull out money, the rupee falls quickly.

5. US Economic Dominance: Leading tech companies, deep financial markets, and global military power strengthen confidence in USD.

How Much the Rupee Has Fallen Over Time

A brief look at how the rupee weakened against the dollar:

• 1947: ₹1 = $1 (approx, non-official comparison)
• 1970s: ₹7–₹8 per $1
• 1991: ₹25–₹30 per $1
• 2000: ₹45 per $1
• 2010: ₹46–₹48 per $1
• 2020: ₹70–₹75 per $1
• 2025: ₹89–₹90 per $1

This long-term decline reflects India’s economic structure compared to the US.

Future of USD vs INR

Short Term: The dollar is expected to stay strong due to US interest rates and global geopolitical tensions.

Medium Term: If India boosts exports, manufacturing, and energy independence, the rupee may stabilize.

Long Term: The dollar may slowly lose some global share due to rising currencies like the Chinese yuan and digital currencies, but it will remain dominant for many years.

Conclusion

The rise of the US dollar and the decline of the Indian rupee is the result of historical events, global economic power shifts, and structural differences between the two economies. While USD strengthened through global trust, trade dominance, and financial influence, INR weakened due to import reliance, trade deficits, and slower economic modernization. Although India is growing rapidly, closing the USD–INR gap will take time and major structural reforms.