I know it is near to impossible but let’s discuss this, “what would happen if 1 rupee is equal to 1 dollar (₹1 = $1)?” What you want dollar to become equal to a rupee or you want rupee to be stronger than dollar. First of all, we have to understand the concept behind the strength of the currency. It depends upon two things:
- Productivity of the people. Let’s take an example to understand it, “If every guy making Rs.75000 pm is able to produce 25 times more output than a foreigner making $3000, then India can enjoy $1 = Rs.1.”
- Inflation. “If a country goes through a sustained low inflation in relation to other countries, its currency would move up. That means after 100 years, if your salaries stays the same at Rs.75000 pm while America’s inflation takes an average guy there’s salary to $75000, then $1 = Rs. 1.”
Economic Viewpoint (If ₹1 = $1)
The price of USD-INR has fallen and that will buy fewer goods & services than previously; and because supply will not change in the short term, the short run Aggregate Supply (SAS) will meet the shifted Demand curve lower than previously. And hence, GDP will fall.
If our currency appreciates so much that 1 USD can buy only 1 INR, they will have to be paying as much as they pay in the US. That is because, the goods and services we consume in India will equal those consumed in the US in value. This leads to a disproportionate increase in costs, which no one would like.
Also, exports get costlier in the market if INR appreciates so much. That is because the price of goods & services consumed here will be valued higher in the USD when our currency is devalued/undervalued.