• NOVEMBER 10, 2009

Dollar's might shall prevail

There are few things that even the speculators would not want to bet on these days. Most important of them would probably be the fate of the US dollar. While China, US' partner in crime for building up a colossal deficit and sealing the fate of the greenback, may want to believe otherwise, the dollar is but certainly an object of concern even to organizations like the IMF and Asian Development Bank (ADB) these days. China is the biggest holder of US government debt and has invested an estimated 70% of its more than US$ 2 trillion of foreign exchange reserves, the world's largest, in US dollar assets. It has expressed its concern over the fate of the currency and its position as reserve currency more often in the recent past. However, both the IMF and the ADB have come to the dollar's rescue.

Worried that withdrawal of stimulus packages, with India taking the lead and other central bakers following in quick succession would mean further harassment for the US dollar, the ADB has sent out clear warning signals. Calling it premature for Asian central banks to begin exiting from their loose monetary policies given the fragility of economic recovery, the ADB chief has vouched for continued economic support at the World Economic Forum. Australia is the only country in the Asia-Pacific region or the G-20 to have raised interest rates as the global economy crawls out of its downturn, although India and South Korea are forecast to raise rates in coming quarters.

India's recent purchase of 200 tonnes of gold from the International Monetary Fund (IMF) also surprised markets and prompted speculation that other central banks such as China's would buy gold to diversify reserves in the face of a declining dollar. However, the IMF also warned global financial leaders to not repeat the mistakes of the Great Depression and choke off emergency support for their economies too quickly. It cited the cases of Great Depression and Japan in the 1990s to drive the point that withdrawing policy stimulus too early could be very costly, particularly if the financial system remains vulnerable and prone to adverse shocks.

Having said that, both the multilateral lenders have firmly reiterated that as the centre of gravity of economic power shifts east, more currencies will gain power, but the dollar will remain a very important reserve currency in the foreseeable future.

India may be called a nation of shoplifters
India's retail revolution was believed to have it all coming its way. A young demography, large working population, growing per capita income and changing lifestyles. However, if a recent survey of retail crime and loss in the world is to be believed, the country has the highest retail shrinkage in the world at 3.2%. Retail shrinkage is the loss of products due to shoplifting, employee theft, paperwork errors and supplier fraud.

The country's retailers complain that the main causes for the US$ 2.6 bn loss are shoplifting and employee theft. Of the total shrinkage, the shoplifting theft rate in the country is at 45%, higher than the global average rate of 43%. After shoplifting, employee theft accounted for 23% of retail shrinkage. Not surprisingly, Indian retailers have had to invest US$ 158 m or 0.2% of their retail sales in security devices.

At the risk of ignoring such shameful recognitions, retailing in India should probably go through a major overhaul in terms of inventory management. Else, India's retail revolution could be short-lived, irrespective of global economic recovery, if Indian shoppers and retailers do not take this issue more seriously.

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