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When a country to devalues its currency it sells its production to the rest of the world at a lower price and it buys production from the rest of world at a hig
by lottin 5y ago
When a country to devalues its currency it sells its production to the rest of the world at a lower price and it buys production from the rest of world at a higher price, compared to before. This is the opposite of a "strong incentive".
- 3np 5y agoSome countries will profit more from that - the reduced global purchasing power is worth it to sell their goods at more competitive prices. This is not a novel idea and is found in literature. Hence the qualifier.
- lottin 5y agoLet me get this straight. If I'm getting paid less per hour, this is good for me because it means I'm selling the stuff I produce at a more competitive price?
- 3np 5y agoLess in global terms, more in local terms. > A weak domestic currency makes a nation's exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products. This improvement in the terms of trade generally translates into a lower current account deficit (or a greater current account surplus), higher employment, and faster GDP growth. The stimulative monetary policies that usually result in a weak currency also have a positive impact on the nation's capital and housing markets, which in turn boosts domestic consumption through the wealth effect. https://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp https://www.investopedia.com/articles/investing/090215/3-rea... https://home.treasury.gov/news/press-releases/sm751 https://home.treasury.gov/news/press-releases/sm751
- lottin 5y ago> Less in global terms, more in local terms. What does that mean? The fact that a currency depreciation can result in higher GDP, doesn't mean it has to. The Turkish lira has been steadily depreciating against every major currency since 2007 and yet Turkey's real GDP is now below its 2007 level. Its current account balance has not only not improved but it's got worse. Nothing suggests that, as a general rule, countries have "strong incentives" to weaken their currencies.
- 3np 5y agoGeneral rule, no. But for certain nations, yes. Those nations just happen to include the global heavyweights.
- lottin 5y agoCan you put a concrete example of a global heavyweight (e.g. a developed nation) that has a strong incentive to weaken its currency?
- 3np 5y agoDid you read the links I provided? Also https://www.investopedia.com/articles/forex/042015/what-currency-war-how-does-it-work.asp https://www.investopedia.com/articles/forex/042015/what-curr...