Is spending Forex on higher education fair?

Students at an examination

The reputed academic had addressed the students at the university and declared, “Our students going abroad for higher studies involve the loss of valuable foreign exchange. How could a poor country like ours afford to lose its vital assets for purposes like educating the children of rich families?” All the students in the audience had been highly taken by this declaration, because at the university, there is normally an anti-foreign degree feeling. What the academic said was, therefore, sweet music to their ears.

The students wanted to argue this case with me in the class. In fact, what they wanted was my endorsement of this view.
When I asked them whether they also hold this view, all of them answered with a single ‘yes’.

“Why do you say so?” I asked them. One student summarized the general opinion on the issue. “The future of our country depends on our having enough foreign exchange resources. We earn them with much hardship. Our exporters work hard. Our expatriate workers work hard. So, what’s been earned in the hard way should be protected. We shouldn’t permit anyone to squander these valuable national assets.”

“Alright,” I told them, “But, how do you think that foreign exchange arrives here?”

“Why, it’s simple,” another student said. “An exporter earns forex and sells that forex to a bank. So, the bank gets to own it.”
“Precisely,” I said, adding: “But, remember whoever who has sold that forex to a bank has already been paid in rupees. It doesn’t matter whether it’s an exporter or a housemaid or a doctor or a professor or a journalist. They’re all properly paid for the forex they’ve parted with. So, that forex does not belong to them. But, to whom does that forex belong?”

“It’s very clear,” a girl replied. “It belongs to whoever has paid for it. If a bank has paid for it, it belongs to the bank” “So, it’s a private asset. What should the bank do with that private asset? Keep it with the bank forever?” I asked them again.

“The bank has bought it to earn an income. So, it should make money out of it,” the same girl answered. The other students also nodded their heads in agreement.

“You’re correct. But, how should the bank put that forex to earn money?” I asked them. They did not have an answer to that question. So, I had to explain; “The bank could lend it to somebody in the country. Then, the borrower has all the right to use it in whatever the way he wishes. Or else, the bank can lend it to someone outside the country. Then, it goes out, but the foreigner has the right to use it. Or the bank could sell it to an importer or a pilgrim to India or Mecca at a higher price. Then, that buyer has the right to use it, because he has paid for it. If it’s a private asset, then, how could you say that it’s a national asset?”

This was also a hard question for them. So, I continued; “The question of national assets arise when the Central Bank buys that forex from the bank and adds it to country’s forex balances. But, the Central Bank pays in rupees to buy it. These rupees finally get into the hands of people who have to give up something to acquire them. May be they borrow those rupees or get paid as salary when they work for someone. Whatever the way, the Central Bank has a forex balance and the people have wealth in rupees. They should be able to use the rupee wealth in any way they like”

“So, what’s the point?” the students were now impatient.

“Let me explain,” I said. “What’s the meaning of our having forex, say a US Dollar?” I asked the question and also gave the answer. “It means Americans are indebted to us to the extent of a Dollar. In other words, they’ve agreed to give us a Dollar’s worth of goods and services from the American economy. We become one of the owners of the American economy! But, the American is a smart fellow. He’s already enjoyed a Dollar’s worth of goods and services from our economy. So, we’ve allowed the American to enjoy life today. The American has promised to allow us to do it on some future day. So, for us to use the Dollar as a national asset, we should use it for the benefit of all of us”

“But, how can you do that?” they asked me.

“By using it as fast as possible to enjoy benefits from the US economy or any other economy which is willing to take the Dollar from us and give a Dollar’s worth of goods and services from that economy. Then, the American makes the same future promise to that country. Hence, holding Dollars indefinitely without using is not a very wise idea,” I said.

“So, Americans are shrewd fellows,” one student opined.

“Yes, but they’re the world’s Central Banker nation. So, they can continue to play this game. And also, if they produce more Dollars, its value falls and those who hold that valuable forex stand to lose. If USA experiences domestic inflation, its value further falls. For instance, a Dollar in 1990 is worth only less than 25 US cents today. If we’d kept that Dollar as a national asset, we would have lost so much”

“But, what about financing education with Dollars?”

“Education is development of human capital. There’s nothing wrong in using Dollars for that purpose. Besides, when some of our students learn in foreign universities, it adds to our total knowledge base.”

“I’ve a problem,” a girl said. “Countries like China, Japan and India which have huge forex resources do actually lose, because they’ve already permitted foreigners to enjoy out of their economies, but they hang on to a promise of future joy only. Is it correct?”“Certainly,” I answered. “They’ve to use them for the quick benefit of their people. Otherwise, they would lose in the long run. Having unnecessary resources is also a curse!”