What is currency devaluation

In time of crisis and economic instability in many countries ordinary people are trying to figure out what is currency devaluation, its reasons and consequences. Often information on the subject is full of unknown economic terms which makes it inaccessible. Now we will try to put it simply.

Devaluation - is the loss of value of a country's currency comparing to one or more foreign currencies, for example USD or EUR. In practice, it looks like this: in the period of currency devaluation you can buy less with the same amount of money.

Devaluation is closely related with inflation, which means the growth of prices while the salaries remain at the same rate. Usually it is a consequence of the currency devaluation. If devaluation reduces your purchasing power with respect to imported goods, inflation negatively affects the purchasing power in regard to domestic goods.

Currency devaluation arises for various reasons, for example, capital outflow from the country, the unstable political situation, the additional emission of money, the decrease in GDP and other economic problems. In case of the fall of imports, the government can decide to cheapen the national currency with the aim of filling the state budget hole and stimulation of domestic production.

There is an opinion that the currency devaluation has positive consequences, for example the increase of demand for domestic products and the growth of exports. However, if some products are manufactured within the country, but, for example, with the use of imported raw material, the cost of this group of products will also increase for the final buyer. As for the exports - it is impossible to get a “big profit” because of inflation, which inevitably follows after currency devaluation. And if we have the unstable exchange rate of the national currency in addition, it becomes much more difficult to carry on business in the international trade.

Most people are more familiar with the negative consequences of currency devaluation, such as decrease in imports, growth of prices, capital outflow, lack of confidence in the national currency, the reduction of the life quality.

Unfortunately the methods of dealing with currency devaluation are long-term and held at the expense of ordinary people, in other words, the reduction of social programs, tax increase, the reduction of government spending, etc. Usually it is quite a difficult period for the country and its citizens, but to be completely honest, there is no other way to solve this issue.

At this point, a reasonable question arises: is it possible to keep your savings, without fear that in the future you will be able to spend it on one bag of groceries in the supermarket? If we talk about the fiat money, the answer is no. The whole monetary system is designed in such way that even in the most economically developed countries the small inflation rate is considered as the norm. In simple words, even if you live in a country with a stable economy, the amount of the money you you have been saving during your life is worth less than many years ago. And it is really difficult to say what can expect people living in the countries that are going through socio-economic shocks.

If you are still very interested in avoiding the consequences of currency devaluation, you should learn more about Bitcoins because now this is the only way to save your money from devaluation, inflation and default. The government has no influence on cryptocurrency, which means the unfair state policy does not pose the threat to your funds at all. You can also consider investing in gold, but this method has its drawbacks as well, not to mention the fact that price of gold is declining for quite a long time.

We hope we managed to explain what is currency devaluation, its consequences and methods of avoiding in simple terms.