A currency is only as strong as the central bank which issues it.

"William Dudley, the immediate past president of the Federal Reserve bank of New York, recently stirred up a hornet's nest when he called for the Fed to consider the impact of its policies on the 2020 presidential election," wrote Prof B Eichengreen. Like the Reserve Bank of India (RBI), the Federal Reserve is the central bank of the US, but unlike the only RBI, it has 12 branches, each of which has its own board and president. US President Donald Trump has been demanding deep cuts in interest rate and reacted furiously after the Fed cut its Funds rate by 25 basis points, calling the members of the Federal Open Market Committee (FOMC), which sets the funds rate, "boneheads". Dudley reasoned that, "If the Fed cuts interest rates in response to Donald Trump's trade-policy actions, the president may be encouraged to resort to more of the same." The Fed can "warn of collateral damage of low interest rates, which harm Americans living on fixed incomes and raise financial stability risks by encouraging investors to stretch for yields". No such problem in India. The government appointed a retired IAS officer, with a degree in history, as governor of the RBI, who has cut interest rate by 110 basis points already and is threatening to take an axe to the interest rate again.  He also cheerfully doled out Rs 1.76 trillion ($24.4 billion) to the Central government from the RBI reserves. The Fed is injecting $75 billion into banks to soften overnight lending rates. The Finance Minister asked for deeper rates cuts to stimulate the economy. The government is by far the biggest borrower and is set to borrow over Rs 7 trillion in this financial year, an increase of 10.9% over 2018-19. Low interest rate helps the government to reduce the interest it pays on its borrowings while reducing the interest people earn on their savings. It is thus a tax on savers. Since the government borrows such huge amounts it creates a shortage of money in banks and results in higher lending rates. To prevent that, the government proposed borrowing overseas in foreign currencies to plug the shortfall in its revenues. Why so frantic? Is India in recession? India's economy grew by 5% in the April to June quarter, while the US economy grew by 2.0%, down from 3.1% in the previous quarter. The US is engaged in a trade war with China which is expected to be a huge bonanza for India as industries shift their production out of China and China looks for alternatives to US agricultural products. Trump wants to weaken the dollar which has remained strong despite these problems, hurting US exports, whereas the rupee has been falling against the dollar. While a weaker rupee could help exports, a strong dollar is not necessarily good news. The Federal Reserve protects US interests, our RBI protects the government. The dollar is strong because the Fed is strong. The rupee can only get weaker.