How a currency loses its value

William Gitahi By William Gitahi, 11th Feb 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/2r0u58qo/
Posted in Wikinut>Money>Economics

The article tries to point out and explain the causes of currency depreciation. in other words, these are the things that bring about currency weakening.

Introduction

Each and every country all around the world has got a currency that citizens use during their trade activities. If asked, no country would want its currency to depreciate. The reason behind this attitude lays in the pursuit for economic superiority. Just like the U.S.A holds a title which brands it the world’s superpower, every other nation has the dream of becoming the world’s greatest economy mover in the future. However, if such a nation fails to employ Economists and Financial Analysts who know how to do their jobs, then it could end up in a mess regarding its Economy. One of the things that can go wrong in a nation’s Economy is currency depreciation.
When a nation experiences, a currency depreciation many components of its Economy do not work efficiently. Firstly, the country Economy will be running at inflation. Secondly, its exports go for cheaper prices whereas the imports become expensive. The nation also loses lots of money in the case of buying foreign currency. With these inefficiencies and many others, the causes of currency depreciation include:

Causes of currency weakening

• Currency hoarding
Powerful people in a country’s government and especially in the ministry of finance can hold to great amounts of cash in attempt to make the currency weak. Many a times, this phenomenon appears when people want to exchange certain currencies for high prices. For instance one would sell a dollar for a price higher than normal if the hoarding succeeded in weakening that country’s currency.
• Increase in the Money Supply
In this case, the country’s central bank releases plenty of cash into the Economy. Having raised the number of their currency in circulation, then it must lose value to foreign currencies. A nation may do this in an endeavor to see its monetary expand.
• Currency depreciation for the purpose of international business matters
A nation’s government may as well depreciate its currency on an intentional basis to salvage their international trade. When the currency becomes weak, their exports sell at a much lower price than before thus attracting other countries to their markets.

Tags

Depreciation, Economic Crisis, Economy, Money Supply

Meet the author

author avatar William Gitahi
I am a brainy and realistic author who is full of enthusiasm to publish helpful articles. My writing skills extend to a vast array of fields although lately my interest has been inclined towards films

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Comments

author avatar Sivaramakrishnan A
12th Feb 2013 (#)

The main reason is inflation. The currency will depreciate against another which has a lower inflation rate. Also when the currency printing press is working overtime! China keeps its currency artificially low by buying up excess dollars earned through trade and hence has the largest forex reserve - siva

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