India Money Supply (M3) Growth
Gold bugs’ favorite charts are those of the US money supply that show rampant “money printing” by the US, leading to a devaluation of the dollar & a bullish case for gold. Here is a corresponding chart of the Indian money supply (M3) from 1951 to 2006:
I got the data from the Reserve Bank of India, and as you can see there’s no M3 data for the 1980-1985 period, and the dollar:rupee exchange rates are plotted on an annual basis, since I could not find monthly data. Nevertheless, you can see the spike since mid-80s, and the corresponding devaluation of the Indian rupee.
To make things more interesting, the past couple of years have seen double-digit growth in M3, but the rupee has strengthened against the US dollar! What it means is that the dollar itself is losing value faster than the rupee. Of course, the true test would be to measure the rupee against gold - one look at the gold price chart confirms the continued devaluation of the rupee as well.
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April 12th, 2008 at 3:16 am
Is it correct to say that M3 money printed by Indian government was largly absorbed by Indian economy unlike US M3 that was exported? That may be a factor in difficuly in establishing correlation between USD and INR exchange rate and M3 supply.