Does Currency Value Falls During Recession?

[abhiseshakana]

I enjoyed the part where you talk about reasons why cash is king and but I was also expecting that you will chip in one or two things about why a currency value might rise or fall during a recession. thanks

Recession is understood as a condition where the economy slows down over a certain period and growth is made a standard condition of an economy. Gross domestic product (GDP) is the general scoreboard of a country's economic health. Sluggishness or deterioration results in a simultaneous decline in every activity in the economic sector. Starting investment, labor, low-interest rates and margins. The effect is a domino in economic activity, both demand, and supply which results in a decrease in GDP, if not immediately addressed, the domino effect of the recession will spread to various sectors such as bad credit, inflation, and even deflation.

In the recession conditions, market participants are so reactive to the dynamics that occur. In situations of high uncertainty, not many investors are willing to take risks. Almost all want to play safe, even very safe by holding cash. Trust in financial assets has disappeared. But economic actors choose not to hold cash but choose cash that is liquid and worldwide. And the choice is the dollar because everything from trade, investment, debt payments, to dividends can be completed if you have US dollars. Demand for the US dollar has increased, its value has strengthened.

It is this foreign exchange reserve in the form of dollars that is often used as a benchmark by central banks in conducting open market operations to maintain the stability of the domestic currency. Large foreign exchange reserves in the form of dollars can be a buffer in neutralizing investment mistrust in a country's economy, which in the end investors' interest can be seen from the high interest in Government Securities

[STT]

Why is cash king? For the record it Gold that's the genuine king and after Gold is bitcoin.

Consider the spread to gold, thats some indicator that gold really requires deals of over 100k to justify movement and trade.    We can use gold on a smaller scale but its not helped when government excludes it and its not a popular in demand item in exchange for items.   The current scenario is that even BTC a new entrant is more popular with the people then gold.  Gold is used as reserve by central banks and other super large entities when costs are low in comparison to size.

Gold could be equated to cash and increasingly I think cash notes are not reliable when governments fail to hold the monetary base in line with GDP hence quite apparent inflation occurs and price inaccuracy.

[Lorence.xD]

There is no general reply, that depends on.each currency, how strong it is and what is the shape of economy that is tied too, how much resilient it is. It's more likely to happen in poor, underdeveloped countries but every currency can fall, depending on circumstances.
Also, it depends how deep the crisis is and what each government and central bank do to protect their currency. So it's not an easy answer.

The deprecation definitely depends on country, look at US as an example, they are the reserve currency of most countries and that is the reason that they can handle recession. Situational factors such as war or bad financial governance can contribute to this value depreciation, one good example of value depreciation is Zimbabwe reaching the billion dollar note which was caused by constant money printing, also the German mark after World War 1, with the war reparations they need to pay, the hyperinflation increases day by day, and lastly is the oil price plummet that caused hyperinflation in Venezuela. Regarding OP's post saying that cash is king, I do not think so, I remember that saying came from a former robber which means that cash is the heaviest item to be carried during a robbery.

[rodskee]

If the recession hits 2020, everything will be greatly affected. Especially the economy will be strongly affected. Of course, Bitcoin will also be affected in value. Perhaps the price of Bitcoin will plummet as much as possible. But this will not affect your Bitcoin investment right now.

But from what we've seen investment from other sources are also helping bitcoin to build a good barrier, there are people
who are engaging themselves to this business.
Recessions affects the market as it's really hitting every economic status from each sides of the world, being ready how
to react is the best thing to do by now.
Keep your investment from the knowledge that you already established and whatever happens to this industry you are
going to survive.

[john_cm]

If you take many different countries, you'll often find sharp devaluations of their national currency caused by economic problems, which can be caused by war, corruption, political instability, etc. But simple recession is not necessary causing a devaluation if this recession isn't deep. Losing a few percents of GDP shouldn't trigger a massive value loss, and if this happens it can also be a coincidence instead of direct cause.

Look at the US dollar value chart - it's mostly just a steady decline, with no sharp movements during 2008 or 1979 or the Great Depression. Big currencies are more resilient than currencies of economically weaker countries that need a lot of support from their central banks.

I get your point, "bigger currencies strive better". From another perspective, I think the purchasing power of a currency rises during a recession as prices of most goods and services are likely to fall during a recession.

[BitcoinTurk]

Considering that money has a certain value and that this value may change over time, it is very likely that money will lose value in this recession process.  This is something that applies to all currencies, not just one currency.  I expect the major currencies to lose value in this recession process.
As I mentioned, the only reason why currencies lose value in the process is the time value of money.  The more unstable the changing interest rates and the pandemic process caused by the disease, the more currency will lose.  Of course, in addition to these situations I mentioned, unlimited money supply in today's market conditions will cause more possible depreciations.

[ololajulo]

I want to believe USA and her dollar are the only currency that can withstand the effect of the pandemic and the influx of fund, especially with response of the fund from the government as palliative, we may be disappointed. We may see a properly management fund in the economy, more so the drastic opening of the economy is strategically placed for swift recovery into normalcy.

[john_cm]

I want to believe USA and her dollar are the only currency that can withstand the effect of the pandemic and the influx of fund, especially with response of the fund from the government as palliative, we may be disappointed. We may see a properly management fund in the economy, more so the drastic opening of the economy is strategically placed for swift recovery into normalcy.

It will be a total miracle for the economy to go through this global pandemic without sinking into a deep recession

[arallmuus]

As I mentioned, the only reason why currencies lose value in the process is the time value of money.  The more unstable the changing interest rates and the pandemic process caused by the disease, the more currency will lose.

No, currency loses its value because of inflation happened in the respective country. In some cases, inflation could lead to recession as well which means the value of the currency will most likely fall but it is not guaranteed to happen.

In this current covid19 situation, some country might have announced that they entered recession already but because the whole world suffer the same covid19 situation then those recession hasnt really give any bigger effect to their country YET

You might want to read this News regarding Japan Entering Recession

Of course, in addition to these situations I mentioned, unlimited money supply in today's market conditions will cause more possible depreciations.

Unlimited supply or if a country keep printing their money will cause hyperinflation. This happened to Zimbabwe like 10+ years ago

[ololajulo]

I want to believe USA and her dollar are the only currency that can withstand the effect of the pandemic and the influx of fund, especially with response of the fund from the government as palliative, we may be disappointed. We may see a properly management fund in the economy, more so the drastic opening of the economy is strategically placed for swift recovery into normalcy.

It will be a total miracle for the economy to go through this global pandemic without sinking into a deep recession

the depth of recession expected looks so exaggerated in the media and it is more of politicking in my own opinion cause no one will benefit from him than to witch-hunt the leadership.

[verita1]

In this time of crisis FIAT depreciates. Although it is the easiest way to pay for goods and services in my country, it loses value day by day. The increase in prices, especially for food, is a crazy. Only I keep in my bank account what I need for the purchases of my daily needs, and the rest Hold Bitcoin and crypto.

[Negotiation]

Yes, we need to save for the future to overcome this recession When the recession strikes the economy is disrupted and everything including food is in crisis. If we grow vegetables around our homes without investing in Bitcoin and Crypto we can make money by selling them A great way to overcome the recession and make easy money.

[omone1]

Recession is generally known to depreciate the fiat because of many stress on the economy from lost of jobs and shutting down of factories and companies creating a major stress that could spell a grave hell. Fiat is usually weak during economic crisis and other bad effect.

[Naida_BR]

You cannot see the real value decreasing.
The value is decreasing due to inflation. This means that new money is printed because of the lack of the liquidity in the market. The result of that is that the real currency value is dropped.

[jostorres]

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.

Yes, I think that saying is right. You know during an economic recession the price of so many assets falls. So, I will say that it’s best not to have your money in any of those , because their price will decrease to a low price when a recession hits. Then after that has happened and you still have cash on you, you have the opportunity to now buy those assets on a lower price and hold your position till things gets better and you see the price climbing up.

Moreover, why they say cash is king is that in a situation like that you will be in need of money to do a lot of things like buying food. It’s really important to have cash man.

[adzino]

You will never know if the value is going to fall or not, but highly likely it will fall. If a country is going to recession, people will likely invest on that country. The prices will start to rise and inflation might start taking place. When inflation takes place, other countries will stop buying from the country suffering from inflation due to high pricing. Thus, the value of the coin will start falling.

I get your point, "bigger currencies strive better". From another perspective, I think the purchasing power of a currency rises during a recession as prices of most goods and services are likely to fall during a recession.

You are saying a deflation takes place? Not really. There is no guarantee that inflation will fall during recession. You are probably forgetting about stagflation. Again, what if the country responds to the recession through printing money? It all depends on the policies taken by the government.

[bits4books]

You are comparing apples with oranges. Since when is money an investment tool for the ordinary person? Money is primarily a measure of value, the equivalent of something. You can at least use a pebble as money if someone agrees to exchange a kilo of pebbles for a case of beer and a couple of steaks. Why cash and not any other? Because to use cash, you only need to agree to accept this money from the seller - you do not need electricity, a card, communication with the Bank, the availability of acquiring, the Internet, and so on. Cash is just very simple!
During a recession, the value of money does not increase, but rather decreases - goods become more expensive and more coins are needed for the same product. Is inflation a familiar term?

[wozzek23]

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.

Of course currencies do lose value during recession. You know were you’re living, the kind of country it is, and I believe you can tell from what’s happening whether the value of county’s currency  will lose value or not.

During recession the dollar might stay king and a lot of people might start buying it to hedge funds. And when people start other currencies and buying dollar because they see value in it, then the other currencies will continue to fall. And I think stocks will be mostly affected because people will sell them to have cash.