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Poornima Mohandas

MUMBAI, Feb. 17

CURRENCY watchers advocate more Indian exporters to invoice in the appreciating euro, the common currency of 12 nations of the European Union.

The common conviction among forex dealers is that the currency is certainly on an ascent and would continue to be so in the long term, though there is some correction in the offing. In the near-term, in the event of a war in West Asia, most currency experts feel that the euro would further strengthen and the dollar would lose its `safe haven' status.

Over the last six months the euro has staged a 26 per cent appreciation in its value against the US dollar. Side by side, the percentage of Indian exports invoiced in euro has gone up to15 per cent of total exports from the country from a mere five per cent, six months ago.

"The time is opportune for exporters to convert their invoicing into euro and for importers to stay away from it,'' concede currency watchers. To receive payments from the overseas customer for products or services in an appreciating currency is beneficial to the exporter since, on conversion, it yields more rupees.

Although most of the present appreciation of the euro is based on weakening fundamentals in the US economy, experts believe that the base rate of the currency has been established, below which it will not dip.

This is validated by the fact that several countries the world over have made euro an important component of their forex reserves kitty.

Among the countries known to have done this are Japan, China and several European countries. "These countries by intervention methods in currency markets will not let the euro dip below 1.05-1.03 levels against the dollar,'' said the treasury head of a private-sector bank.

From its levels of 0.8650 against the dollar on February 1, 2002, the euro-dollar went to 1.0938 on February 7, 2003, a three-year high of the euro against the dollar. The running euro-dollar rate is 1.0712 and the euro-rupee is at 52.86.

In the rush to cash in on an appreciating currency, there are words of caution too for exporters.

On invoicing in euro, an exporter would have to watch, not just one, but also two, exchange rate movements — the euro-dollar and the dollar-rupee and therefore he is exposed to two currency risks.

This is because an exporter on receiving payments in euro has to first convert it into dollars and subsequently into rupees. This is necessary because euro-rupee does not have sufficient liquidity and does not have attractive quotes.

An exporter must also remember that the Reserve Bank of India (RBI) does not offer patronage for exporters invoicing in euro as it does for the exporters invoicing in dollar.

This is not possible since the euro-dollar exchange rate movement is determined by international markets and is outside the realm of the RBI.

For the exporter invoicing in dollar, RBI through passive intervention does not allow the rupee to appreciate beyond a point against the greenback.

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