Does Currency Value Falls During Recession?

[cryptoboy007]

There is a popular saying that Cash is king, a term reflecting the belief that money (cash) is more valuable than any other form of investment tool, especially in the event of an economic downturn when there are cheap securities and properties that could be bought with cash.

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

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[jackg]

Based on the idea it's a GLOBAL recession then the value of products is based on the value of other products.

Since real estate and stocks make up a HUGE amount of assets, I'd say cash rises due to this. But your cash still probably buys the same amount of grains&veg as it did in the past... If oil falls, transportation cost decreases too, if it rises, transport cost increases. Increase in transport cost is passed onto customers (a decrease is quietly ignored by logistics firms)...

[fiulpro]

Let us first understand that recession is an unfortunate turn of events where everything falls down in value , Fiat is something that will ofcourse fall too . But the reason we don't see that much difference is because:

The government tries to control the market value by selling the shares with a particular important currency, like if you have inr and usd shares in the bank , the government advises the banks to sell the USD shares so that their Currency can maintain a strong hold .
But unfortunately this provides government with a limited power .

At the same time government tends to print a lot of money during recession to support the people and the economy which is slightly detrimental for us for the long run only .

Economic decline would affect everything including Fiat.

When we are talking about the security factor one should understand that :
It is only viable for a small percentage of population, rest are suffering to even maintain normal lifestyle for their families.

[Upgrade00]

A recession could be a successive decline in GDP growth per capita; this is where the economy drops over more than one period (usually quarterly). It could also be due to negative sentiments due to vincibility of one or more economic factors and indicators.

If there is a drop in GDP growth, market confidence is low and macroeconomics gets hit hard, along with SMEs, the government would likely initiate fiscal policies that would be aimed at increasing spending to boost the economy, if this inflow of cash is not balanced, businesses still failing and loans getting defaulted, there would likely be a drop in the value of the currency.

However during a recession there can equally be a crash in value of assets such as housing and real estate, this drop in asst value has occurred over a couple or global recessions (1991/2009). A drop in asset value would mean a rise in currency value or better put; a fall in inflation rate.
So, Currency value doesn't always fall during a recession.

You should also note that it is a process, when economic recession hits policies are initiated to support the economy, we now get to the recovery stage, and then the expansion stage, each stage could last for carrying periods of time, and a rise or fall in the currency can occur at any of the stages. During the expansion stage confidence is usually high and the market is more balanced.

[tabas]

Based on the idea it's a GLOBAL recession then the value of products is based on the value of other products.

Since real estate and stocks make up a HUGE amount of assets, I'd say cash rises due to this. But your cash still probably buys the same amount of grains&veg as it did in the past... If oil falls, transportation cost decreases too, if it rises, transport cost increases. Increase in transport cost is passed onto customers (a decrease is quietly ignored by logistics firms)...

This is what I've noticed. When there's a surge in oil prices, most other sectors are affected and they also rise in expense. It's the number 1 commodity for these businesses to continue and operate.

At the same time government tends to print a lot of money during recession to support the people and the economy which is slightly detrimental for us for the long run only .

Economic decline would affect everything including Fiat.

When we are talking about the security factor one should understand that :
It is only viable for a small percentage of population, rest are suffering to even maintain normal lifestyle for their families.

Yup, those band aid solutions by the government will mostly affect a lot of people that's under the average level of living. They'll be the people that can feel the effect of it in the long run.

[exstasie]

There is a popular saying that Cash is king, a term reflecting the belief that money (cash) is more valuable than any other form of investment tool, especially in the event of an economic downturn when there are cheap securities and properties that could be bought with cash.

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

It depends whether there is significant deflation or not. Deflation means falling prices, which implies more valuable currencies.

In the context of the current pandemic, deflation fears in March really shook the currencies of emerging economies. When the global lockdowns hit, they plummeted against the USD because there was an expected sharp decline in growth and foreign investment while high USD denominated debts were sustained. The last few weeks as economies have reopened and the economic outlook improves, we have seen the opposite effect and the dollar has weakened.

What happens in the long run really depends on whether a deflationary cycle (like the early 1930s) takes hold or not. The jury is still out on that.

[Rengga Jati]

As what I read from the article, I can get the meaning, at least here.
There may be no hard or even fast rules due to what's going to happen to currency value currency during the recession, or even the deep recession. Even though, some currency may seem to fall. because, the country is not considered a worthy place for investment anymore.

The evaluation of factors that may influence:
1. In the recession period, inflation is seemly to fall.
2. Many factors may affect the values of the currency
3. It may depend on what's happening right now in other countries around the world
4. The confidence of the country even faces the recession.


Source:
https://www.economicshelp.org/blog/9746/currency/happens-value-currency-recession/

[cryptoboy007]

As what I read from the article, I can get the meaning, at least here.
There may be no hard or even fast rules due to what's going to happen to currency value currency during the recession, or even the deep recession. Even though, some currency may seem to fall. because, the country is not considered a worthy place for investment anymore.

The evaluation of factors that may influence:
1. In the recession period, inflation is seemly to fall.
2. Many factors may affect the values of the currency
3. It may depend on what's happening right now in other countries around the world
4. The confidence of the country even faces the recession.


Source:
https://www.economicshelp.org/blog/9746/currency/happens-value-currency-recession/

If inflation falls drastically then I am guessing that the value of the currency has a high chance of appreciating

[palle11]

Recession is an economic term to define the economic situation when the GDP, economic indicators have falling down. When there is recession, it means that the economy is not just stagnant but dropping because there is no enough production going on to boost growth, lose of jobs and no salaries paid. Meaning monies get devalued giving room for abject poverty.

[mnporter2001]

There is a popular saying that Cash is king, a term reflecting the belief that money (cash) is more valuable than any other form of investment tool, especially in the event of an economic downturn when there are cheap securities and properties that could be bought with cash.

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

It depends on the type of recession. If the recession due to the money supply is too big, then it will surely lose great value. but if due to other factors such as disease, money will be devalued. because when an economy is not doing well, it is in a recession, GDP will surely decrease. that will make the currency of that country lose value.

[concept2]

During the recession, most of assets lost their price, including cash. Although Cash is the king of the world, it can not escape the great recession like this.
However, as you can see, despite the decrease, cash still have a great value compare with other assets such as cryptos or bonds. The only asset that stand still is gold. Gold has been on this world for more than thousands years and therefore, people believe gold the most

[Ucy]

In my opinion, fiat currencies would normally lose value when their supply is higher than needed or necessary, while the production/availability of goods/services that are in high demands remain thesame, increase a bit or remains low —  Inflation kicks in & fiat begins to lose value.
 If you have $2000 in savings since 2018, and price of a bag of rice was $50 then, today prices of goods and services start going up, and a bag of rice becomes $100, your $2000 purchasing power will lessen.... it will only be able to buy $20 bags of rice instead of 40 bags two years ago...
You could mitigate inflation if you work harder to produce more of those things that are in high demand, or you could replace them with good/better alternatives(esp local alternatives) that are easier or quicker to produce.
 I think countries will probably use robot/tech/sci to produce more, quickly. Hopefully it's safe/good for societies and doesn't reduce the quality of the goods/services.

[hugeblack]

In the event of an economic downturn in which the price of essentials increases and panic occurs because many factories stop and the unemployment rates increase, but this does not mean that paper money (Cash) is the best investment at that time.
Money loses its value quickly, but crises happen every contract or less, which means that you need to rely on assets that are considered a storehouse of value and diversification of those assets.

[mu_enrico]

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

To answer this question, Monetarism comes first in my mind with the M v = P Y (however it's not actually used to explain recession). For the sake of simplification, let's assume it was a common recession and the money supply (M) unchanged.

When there's a recession, the velocity of money (v) decreases since people will hold money and reduce their consumption (spend less), therefore GDP (Y) also decreases. How about the price? Well, it depends on how responsive the GDP can change so that the equation remains balance (equilibrium).

You can expect P to increase or decrease depending on how much the decline in GDP. Most of the time, the rate of GDP decline itself cannot achieve equilibrium or too slow (remember GDP is "all the finished goods and services produced" -Investopedia) so the P has to decline. Well, generally, you can say that money is more valuable in a recession since goods become cheaper.

[Findingnemo]

Price of fiat doesn't fall due to recession but if governments decided to float the market by printing more money the inflation will results in the value drop.Cash is the kind until the market is in bearish mode but if you keep hoarding your cash for too long it will be loss for you, so keep cash when asset prices falling then buy immediately when it reaches bottom.

[azmirihaque]

There is a popular saying that Cash is king, a term reflecting the belief that money (cash) is more valuable than any other form of investment tool, especially in the event of an economic downturn when there are cheap securities and properties that could be bought with cash.

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

At the time of recession people hold little cash in hand. Unemployment rate increases highly. Banks become unable to supply sufficient cash. Demand decreases in the minimum level. Maximum production remains unsold. As a result, price level gradually goes down. When price decreases, people can purchase more with fewer amount. Too little money goes for too many goods. That means currency value appreciates and goods value depreciates.

[Negotiation]

Yes, when bad things happen everything goes downhill That's why I think it's better to buy at a lower price during this recession Everything is hampered due to economic problems, people become unemployed and suffer financial problems in which case not only the price of the currency but also the price of goods goes down a lot. However it is a good time to buy when the price of Bitcoin is lower than the price of the currency because if the price goes down, it will go up.

[squatz1]

Highly depends on where the recession is happening and where it is the worst. It also depends on if you're talking about the value of a currency in regards to other currencies in the world, or just internally as you'd be talking about purchasing power with your money.

But typically during a recession people are going to have less income so they're going to buy less goods, which in turn causes the price of goods to decrease and inflation will fall because of this -- as inflation is just the increase in the value of goods (averaged) over the course of a year -- so typically during a recession inflation is lower then what it would normally be. In the US this rate is typically 2-3% each and every year.

During a recession without much government intervention, this number would be lower -- but if government intervention occurs (through monetary policy like printing more money) then inflation will most likely still stay in that 2-3% range.

But to answer your question -- Yes if other countries have higher inflation, no if other countries have lower inflation. But there's no hard and fast rule surrounding this. Lot more variables to consider. Because if a country falls into a recession and confidence falls in the governments ability to pay back its debt, then the currency is going to fall/crash in value. Circumstances matter.

See here - https://www.economicshelp.org/blog/9746/currency/happens-value-currency-recession/#:~:text=In%20a%20recession%2C%20inflation%20is,currency%20causing%20it%20to%20rise.

[Darker45]

The truth is that the value of fiat currency depreciates, not relative to other fiat currencies but on its own. That is true regardless of whether there is recession or not.

If there is no recession, the normal design of fiat will continue to work as usual, which means that its value will depreciate over time.

If there is recession, interest rates would likely fall, currency would become less attractive, and therefore its value will fall. Not to mention that the central bank would be printing more and more money out of nothing, thereby accelerating the erosion of its value.   

[abhiseshakana]

There is a popular saying that Cash is king, a term reflecting the belief that money (cash) is more valuable than any other form of investment tool, especially in the event of an economic downturn when there are cheap securities and properties that could be bought with cash.

On the flip side, I am very curious to know if the value of fiat currency appreciates or depreciates during a recession and why.

Cash is king in the face of contractions and economic recession. When faced with conditions of slow down or tight money, the one in charge is cash. In a crisis position caused by the corona pandemic, many opportunities arise due to credit traps or speculative acts. So for this pandemic, you should prepare cash money by selling unproductive assets or investing in short-term trading to reduce risk.

Government policy to overcome the financial crisis by controlling debt recognition and money market securities by tightening fiscal causes stress in the economy. The ups and downs of the value of a country's currency are influenced by the way the market and other worlds view a country's economy.