Dollars dry up in fund flood

A strong rupee may be great news for importers, but for moneychangers Cox & Kings, Thomas Cook and others, it is proving to be a headache. The reason: A scarcity of dollar notes. “We find it difficult to cater to customers, who want dollar notes because they aren’t available easily in the open market,” confirmed Aashutosh Akshikar, CEO of Mercury Travels, which runs Bureaux de Change.

Ironically, the shortage of US currency notes is a direct result of the record $26.28 billion that foreign institutional investors have pumped into domestic markets since January. Moneychangers say the rupee’s strengthening – from Rs 46.58 against the greenback on July 1 to Rs 44.26 on November 8 – has resulted in people holding on to dollars they had bought.

“Companies, banks and even individuals, who purchased dollars with stronger rupees, are unwilling to sell them,” explained Ravi Menon, head of foreign exchange at Cox & Kings.

Contributing to the shortage is a sharp rise in overseas travel. Traditionally, October-December sees a surge in inbound tourism, compared with outbound, because of winter in the US and Europe. However, with Indians travelling a lot more this season, several moneychangers are having a hard time coping with swelling demand. “The demand for dollars has risen by 25 per cent,” estimates the head of a travel agency.

In order to bridge the deficit, the currency is being imported in large quantities from vendors worldwide, according to Madhavan Menon, managing director of Thomas Cook India. October saw imports worth $8-10 million, compared with negligible amounts in the same month last year.

Moneychangers without a licence to import the currency directly are routing their requirements through banks. “Typically, three or four get together and approach a bank to import the currency, based on their requirements. They guarantee the transaction, the value of which is determined on forward rates,” explained Akshikar.

To tide over the currency shortage, moneychangers are pushing pre-paid cards and travellers’ cheques more aggressively. “We are pushing these alternatives because hard currency is unavailable,” according to Menon.

Moneychangers are also hoping for a rise in inbound travel to ease the situation. “Going forward, shortages in the local currency market will become increasingly difficult to predict,” added Menon. The hope lies more in a rise in inbound travel, he said.