Why the Indian Rupee Could Become a Hard Currency

The video explores the characteristics of international currencies, focusing on developed markets with deep financial systems. It examines India's efforts to formalize its economy through measures like demonetization and GST, leading to increased tax buoyancy and digital transactions. The discussion highlights how taxes create demand for currency, using the chartalist view. It also addresses fiscal policy challenges in emerging markets, emphasizing the need for a large tax base to stabilize the economy and potentially elevate the rupee to an international currency.

What is a key characteristic of hard currencies?

• They are not affected by inflation.

• They are backed by gold.

• They are from countries with deep financial markets.

• They are used only in developed countries.

What was one of the measures taken by India to formalize its economy?

• Reduction of electronic payments.

• Introduction of a new currency.

• Implementation of a single national tax.

• Increase in cash transactions.

What is one of the outcomes of India's demonetization and GST implementation?

• Reduction in tax buoyancy.

• Increase in mutual fund investments.

• Decline in life insurance products.

• Decrease in digital transactions.

How do taxes create demand for a currency according to the chartalist view?

• By increasing the currency's value.

• By requiring taxes to be paid in that currency.

• By limiting the supply of the currency.

• By making the currency a global standard.

Why is a large tax base important for a currency to gain international status?

• It allows the currency to be used globally.

• It makes the currency inflation-proof.

• It ensures the currency is backed by gold.

• It increases the currency's demand.

What is a common challenge for emerging market economies during recessions?

• They can provide counter-cyclical stimulus.

• They can easily increase spending.

• They have a large tax base.

• They have to tighten fiscal policy.

What is a key factor that determines whether the rupee can become an international currency?

• The level of inflation in India.

• The amount of gold reserves.

• The expansion of fiscal assets.

• The number of digital transactions.