2
$\begingroup$

The value of Indian rupee has decreased over the years. The government apparently makes no effort to stop or reverse it. Instead they focus on other aspects of development.

Observation 1-

I see that pound is more powerful and indeed the UK though has less GDP than US is a highly developed nation. I also heard about the devaluation of the currency of Zimbabwe and that it was not good.

Observation 2-

Then, I also heard about manipulation of currency to devaluate it.

Based on two observations,

Wouldn't it be considered a healthy sign if the value of rupee (or technically any currency) is more? Or, are there anything good in case of moderate devaluation of a currency?

$\endgroup$
0
5
+50
$\begingroup$

Currency depreciation (devaluation is for fixed exchange rate) has many good side effects. Most important positive effect is that it helps domestic exporters because it makes Indian goods cheaper abroad. This means people are more likely to purchase stuff from India. This will help Indian businesses.

$\endgroup$
2
$\begingroup$

Economic theory say that the devaluation of a currency can help as long as the country does not import more than it exports and mainly does not import a lot of raw materials or intermediates to be processed. If a country has these characteristics and decides to devalue, then it will sink into recession and will be "baked" by inflation.

The real exchange rate represents the relationship between the exchange of domestic goods and services and the goods and services produced abroad.

The exchange rate should (at least in the long run) balance the purchase value of our country's currency with the foreign currency.

$\endgroup$
0
$\begingroup$

Yes, there are usually some agents that are better in case of devaluation. For instance, the firms that receive the new money first, before the prices adjust.

$\endgroup$
0
$\begingroup$

Let's assume that Tigerville, a fictitious country, moderately devalues its currency. This would be beneficial to the economy of Tigerville as it would increase its net exports. This is because the rest of the world would want to import more goods and services from Tigerville, since the currency would be worth less and the prices of imported goods and services would decrease. People in Tigerville would buy less imported goods and services since prices would go up. There are some exceptions, such as life saving drugs.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy