1 thought on “What causes the currency depreciation? There are several cases of the reasons for the depreciation of the currency”
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1. Excessive debt: In normal environments, investors and speculators will determine the money value based on key macro factors. In countries with too much debt, currency depreciations often occur, so investors are regarded as risks. Excessive liabilities will also lead to too much interest payment to occupy a national budget, reduce national productivity and prevent economic growth. National credit rating will also be damaged due to excessive debt, which will lead to further increase in borrowing costs and cause harm to economic development. A country facing a large amount of debt may also reduce the actual value of debt through currency depreciation.
2. Central bank business: The central government plays an important role in currency valuation. Each central bank controls its own country's coinage rights and holds a large number of foreign exchange reserves. The World Central Bank holds a huge foreign exchange reserve and regulates based on future trends. Most central banks have two tasks in terms of monetary policy, namely to control inflation and ensure economic growth. The central bank mainly achieves the goal by controlling the number of currency flows. By reducing interest rates or reducing banking reserves, central banks allow more currencies in the market. However, increasing currency supply will also reduce the value of monetary, which is the most basic principle of supply and demand.
3. Economic growth and central bank policy: When evaluating the purchasing power of currency, investors will consider the growth expectations of a country. If economic growth looks bad or entered a recession period, speculation has determined that the country's central banks will increase currency liquidity to stimulate the economy. Low interest rates lead to a reduction in loan costs and increase economic activity. Therefore, the slowdown in economic slowdown can lead to a loose coinage policy, which also means currency depreciation.
4. Currency crisis: The currency crisis occurs when speculators lose confidence in the economic or monetary policy of a country, which is usually caused by arrears of national debt. During the crisis, the selling pressure was very large because currency holders raced the currency. The more typical economic crisis in modern times is the Latin America crisis in 1994, the Asian crisis in 1997 and the Zimbabwe crisis after 2000.
5. The US dollar is a special case of reserve currency: the US dollar is facing a special environment because it is considered the world's reserve currency, which means that it is the reserve currency of most countries. The US dollar is also the default currency of oil trade. Due to its special status, the transaction of this currency itself has certain advantages. But in the long run, the US dollar will be in a significant depreciation trend.
1. Excessive debt: In normal environments, investors and speculators will determine the money value based on key macro factors. In countries with too much debt, currency depreciations often occur, so investors are regarded as risks. Excessive liabilities will also lead to too much interest payment to occupy a national budget, reduce national productivity and prevent economic growth. National credit rating will also be damaged due to excessive debt, which will lead to further increase in borrowing costs and cause harm to economic development. A country facing a large amount of debt may also reduce the actual value of debt through currency depreciation.
2. Central bank business: The central government plays an important role in currency valuation. Each central bank controls its own country's coinage rights and holds a large number of foreign exchange reserves. The World Central Bank holds a huge foreign exchange reserve and regulates based on future trends. Most central banks have two tasks in terms of monetary policy, namely to control inflation and ensure economic growth. The central bank mainly achieves the goal by controlling the number of currency flows. By reducing interest rates or reducing banking reserves, central banks allow more currencies in the market. However, increasing currency supply will also reduce the value of monetary, which is the most basic principle of supply and demand.
3. Economic growth and central bank policy: When evaluating the purchasing power of currency, investors will consider the growth expectations of a country. If economic growth looks bad or entered a recession period, speculation has determined that the country's central banks will increase currency liquidity to stimulate the economy. Low interest rates lead to a reduction in loan costs and increase economic activity. Therefore, the slowdown in economic slowdown can lead to a loose coinage policy, which also means currency depreciation.
4. Currency crisis: The currency crisis occurs when speculators lose confidence in the economic or monetary policy of a country, which is usually caused by arrears of national debt. During the crisis, the selling pressure was very large because currency holders raced the currency. The more typical economic crisis in modern times is the Latin America crisis in 1994, the Asian crisis in 1997 and the Zimbabwe crisis after 2000.
5. The US dollar is a special case of reserve currency: the US dollar is facing a special environment because it is considered the world's reserve currency, which means that it is the reserve currency of most countries. The US dollar is also the default currency of oil trade. Due to its special status, the transaction of this currency itself has certain advantages. But in the long run, the US dollar will be in a significant depreciation trend.