As sovereign actors, countries control the value of their currency. However, what they do not control is how other currencies interact with their own. A multitude of factors influence the value of a country's currency. The desirability of their goods and services, the credibility of its financial system, the health of its economy, government spending in relation to its revenue collection, and the faith in the economy overall all impact the value of a currency.
When one or more of these factors become negative, the value of a currency can fall when compared to the value of another currency. Countries in Asia, Africa, and Latin America have all undergone currency devaluation in recent decades, leading to immediate economic difficulties but longer term growth due to the cheaper goods now being produced and purchased by other countries. Even the United States has devalued its currency in years past, to remain competitive against economic powerhouses China and Japan.
This short book demystifies the process of devaluating a currency, and explains the consequences that occur when this happens.
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