Every country aims to devalue its own currency!
It's the sneakiest of strategies countries use to compete against each other
The crazy part? This is the real secret behind the growth of China!
Here's how they pull it off:
It's the sneakiest of strategies countries use to compete against each other
The crazy part? This is the real secret behind the growth of China!
Here's how they pull it off:
Does it interest you as to how China rose to such economic heights?
One of the infamous reason being Devaluation.
A COUNTRY DEVALUES ITS CURRENCYโฆ SOUNDS SHADY, RIGHT?
WELL, on the contrary, it's a masterplan move used by various countries as an attempt to boost their economy.
One of the infamous reason being Devaluation.
A COUNTRY DEVALUES ITS CURRENCYโฆ SOUNDS SHADY, RIGHT?
WELL, on the contrary, it's a masterplan move used by various countries as an attempt to boost their economy.
While we would very much like to dive into the juicy engagements of these said nations, let us first explain what devaluation means:
Devaluation of currency literally means intentionally reducing the value of a nationโs currency as compared to other currencies.
Devaluation of currency literally means intentionally reducing the value of a nationโs currency as compared to other currencies.
This is of course done by the central banking authority of a nation.
It can be done via various methods such as lowering interest rates, increasing monetary supply, or selling the currency in foreign exchange market.
BUT the bigger question is โ why do it?
It can be done via various methods such as lowering interest rates, increasing monetary supply, or selling the currency in foreign exchange market.
BUT the bigger question is โ why do it?
Why does a country sabotage its own currency?
It is believed that a strong currency value is, after all, the hallmark of a strong economy.
But contrary to popular belief, a strong currency is not necessarily in a nation's best interests.
It is believed that a strong currency value is, after all, the hallmark of a strong economy.
But contrary to popular belief, a strong currency is not necessarily in a nation's best interests.
A weak domestic currency makes a nation's exports more competitive in global markets, and simultaneously, makes imports more expensive.
So, currency devaluation is a strategy to neutralize trade imbalance, save the economy from external factors, and boost exports.
So, currency devaluation is a strategy to neutralize trade imbalance, save the economy from external factors, and boost exports.
As currency depreciates in the global arena, exports become more favourable and imports become unfavourable.
This boosts the internal economy towards export and internal usage of own goods.
Hello ATMANIRBHAR BHARAT!
This boosts the internal economy towards export and internal usage of own goods.
Hello ATMANIRBHAR BHARAT!
By devaluing the currency, trade deficits are lowered which also favours the balance of payments and thus, helps the economy by providing temporary relief.
However, devaluing a currency can also have negative effects, such as inflation, reduced purchasing power for citizens, and the citizens might not find the countryโs economy on a stability pedestal.
Then what might be so tempting for a country to risk it all?
Then what might be so tempting for a country to risk it all?
Like weโve already discussed,
๐ To boost exports:
By devaluing their currency, a country can make its goods and services cheaper for foreign buyers, which can help increase exports and improve the trade balance.
๐ To boost exports:
By devaluing their currency, a country can make its goods and services cheaper for foreign buyers, which can help increase exports and improve the trade balance.
๐ To make imports more expensive:
When a country devalues its currency, imports become more expensive, which can help protect domestic industries from foreign competition.
When a country devalues its currency, imports become more expensive, which can help protect domestic industries from foreign competition.
And also,
๐ To reduce debt:
If a country has a large amount of debt denominated in foreign currencies, devaluing its own currency can make it easier to pay back that debt with cheaper currency.
๐ To reduce debt:
If a country has a large amount of debt denominated in foreign currencies, devaluing its own currency can make it easier to pay back that debt with cheaper currency.
๐ To stimulate the economy:
Devaluing a currency can make exports more attractive, which can lead to increased economic activity and job creation.
All reasons aside, what should you be interested in this financial strategy?
Devaluing a currency can make exports more attractive, which can lead to increased economic activity and job creation.
All reasons aside, what should you be interested in this financial strategy?
Well, if the current news didnโt give it away, then the biggest reason is โ CHINA and the USA.
China and the United States are engaged in a trade war that has been going on since 2018.
China and the United States are engaged in a trade war that has been going on since 2018.
The two countries have imposed tariffs on each other's goods, with the U.S. accusing China of unfair trade practices and intellectual property theft, while China criticizing the U.S. for protectionism and bullying tactics.
The US has strongly accused China of devaluing its currency many times, but, of course, China denied such allegations.
The irony? Earlier, USA was the one pressuring China to devalue Yuan
The irony? Earlier, USA was the one pressuring China to devalue Yuan
โ accusing them of unfair international trade because China kept their capital and labour prices very low.
Later, China discovered the advantage of devaluation.
When the yuan is devalued, it becomes cheaper relative to other currencies.
Later, China discovered the advantage of devaluation.
When the yuan is devalued, it becomes cheaper relative to other currencies.
Making Chinese exports more attractive to foreign buyers.
This has boosted China's economy by increasing demand for its products and increasing its market share in international markets.
This has boosted China's economy by increasing demand for its products and increasing its market share in international markets.
Devaluing the yuan has also helped offset the effects of tariffs or other trade barriers that other countries could have imposed on Chinese exports.
By making its exports cheaper, China can maintain its competitiveness even in the face of these barriers.
By making its exports cheaper, China can maintain its competitiveness even in the face of these barriers.
But every tactic comes with a price to pay and that for China is inflation!
It can impact the domestic traders negatively, generate mistrust among the citizens
It can impact the domestic traders negatively, generate mistrust among the citizens
โ though the Chinese government doesnโt value much of public opinion anyway, but still, it can lead to domestic as well as international conflict.
If you liked this read do ReTweet๐the 1st tweet
and follow us @FinFloww for such reads every Monday, Wednesday and Friday!
and follow us @FinFloww for such reads every Monday, Wednesday and Friday!
Join 11,839 people who read such stories daily on their WhatsApp:
chat.whatsapp.com
chat.whatsapp.com
The BRICS countries are exploring the creation of a common currency for trade amongst themselves which might pose a challenge to the US dollar dominance.
To find out more stay tuned for the upcoming newsletter!
Join the 4956 who read it every Sunday:
FinFloww.substack.com
To find out more stay tuned for the upcoming newsletter!
Join the 4956 who read it every Sunday:
FinFloww.substack.com
We're also launching our Youtube channel soon. Subscribe to not miss our first drop:
@FinFloww" target="_blank" rel="noopener" onclick="event.stopPropagation()">Youtube.com
@FinFloww" target="_blank" rel="noopener" onclick="event.stopPropagation()">Youtube.com
Loading suggestions...