What are the benefits of currency devaluation to a country?
When a country’s currency reduces its value, it affects the country’s economy directly. There are scenarios in both devaluation and revaluation of currencies. In the devaluation of currencies, there are disadvantages and many more advantages as well. Due to the involvement of currencies, currency devaluation directly affects the Forex market.
There are two types of major economic activities a country may undergo. Namely
Import goods and services
Export goods and services
Import and export are the components of international trade. Each country imports goods and services they cannot find inside the country. Also, they export domestic production and the excess amount of natural resources.
For imports, a country must spend their government reserves. There might be essential needs such as medicine and food. The relevant country must pay for what they import. When the currency devalues, more money should pay for the same amount of purchase.
So that the economy will go down with time.
For exports, a country gets paid by foreign countries. When the currency devalues, all other foreign countries who pay for their imports increase their demand. Reason for that is, the amount they have to pay is reduced due to devaluation. Every country who buy goods and services increase their demand. To fulfil that demand, the relevant country must expand its production. This helps boost job creations and also boost economic growth.
Furthermore, expensive currency has an adverse effect on exports. Other than that, expensive currency reduces its demand in Forex. Currency devaluation makes countries exports more competitive. And devalued currencies gain more interest among Forex market.
To gain benefits from the devaluation of a country’s currency, such country must maintain a proper balance in their imports and exports.