
The Rupee 157
to try to understand the nature of the currency regime, particularly given the
lack of official statements from RBI about what the currency regime is.
9.3 A DE FACTO PEGGED EXCHANGE RATE TO
THE US DOLLAR
One extreme possibility is a rupee-dollar rate which is fixed by RBI. In this case,
the rupee-euro rate, or the rupee-yen rate, would mechanically follow the dollar-
euro and the dollar-yen rates respectively. Since the dollar-euro and dollar-yen
exchange rates are floating rates, a fixed rupee-dollar fixed exchange rate would
imply high volatility of the rupee-euro and rupee-yen rates, reflecting the fact
that the dollar-euro and dollar-yen