From the economic point of view, we hear a lot about the term currency devaluation, which is a common term in economics and has many meanings and connotations.
Many economists believe that the devaluation of the currency represents an economic crisis for the economy of the country in which this devaluation occurs.
What does currency devaluation mean?
Currency devaluation is a decrease in the price of the national currency of a country against other foreign currencies, and this decrease may be the result of decisions by the government that monitors its exchange rate and decides to devalue the currency depending on market conditions.
This reduction may be a result of allowing the exchange rate to float without control, something known as free float, and here the reduction occurs according to supply and demand.
The importance of devaluation decisions
Many countries and governments resort to devaluation in the event of any trade and economic deficit. Governments try to devalue the exchange rate in order to restore economic balance to their commercial aspects and try to control the deficit that exists as a result of the economic crisis that occurred.
Since the devaluation of the currency may be a means of raising foreign imported prices, and thus there is a demand for national commodities, and this is the goal of governments to reduce the currency rate.
Positive and negative currency devaluation
There is a lot of talk about the negative effects of currency devaluation and what may result from a rise in the prices of some commodities and the negative effect on the local economy.
Many believe that the currency devaluation process must be under proper economic management for the local economy to benefit from its positive aspects and avoid its negative impacts.
Devaluation is a positive thing for those who have investments in foreign currency as it leads to big gains for these investors within the local market due to the high price of the foreign currency compared to the local currency.
How does devaluation affect the market/economy?
Currency devaluation may lead to lower exports in some markets, especially emerging markets.
But in general, this leads to a decrease in the prices of commodities of local production, which increases the ability to compete with foreign commodities and enhances the volume of exports of many local products.
The devaluation of the currency may lead to inflation in the prices of imported products, which is an increase in the cost of imported products. In managing the market, this may be a harmful matter for the economy, or a positive matter if the use of local production is used to compensate for that.
As we have already indicated, the devaluation of the currency may carry positive or negative results, and therefore, managing the process from an economic point of view is what determines whether a country will stand to benefit from the devaluation of the currency.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.
