How Does devaluation of currency helps to build a dwindling economy?

[Spaceman1000$]

In building a struggling economy at a time of global economic crisis caused by Covid, global inflation etc, some experts have argued that it's sometimes necessary to devalue a country's currency in a bid to keep the country's economy afloat, hoping that this measure would strengthen the currency and subsequently improve their economy. Third world countries are always caught up in this ugly situation.
Today, local currencies of Ghana and Zimbabwe, to mention a few, are stock in a familiar terrain of currency devaluation that had adversely shut down some SMEs and impoverished their citizens. Because I believe, in improving an economy of a country, the country must improve on its production base, her export on goods produce locally should improve as well, the ease of doing business within the country play a key factor too, foreign and direct investment plays an important role on the economy of a country.
So my question is, how does these particular act of devaluing a country's currency helps in building an economy?

[1714596210]

1714596210

[EarnOnVictor]

I don't know how the devaluation of a country's currency would help during inflation, it will rather aggravate the problem especially if the country is an importing one. In my experience, you should not use third-world countries as an example, they are still under the slavery of the top world countries and their currency devaluation are not often to help the economy but to submit to the pressure of bodies like IMF, World Bank and other. They often do this because of favours needed from them, like for loans and others, and the bodies might gauge it based on what they believe the currency rate should be, which may or may not be the true reflection.

Such happens so much in Nigeria, but has it solved the problem? Certainly No, it rather aggravates it.

The only fair reason why sane and working countries devalue their currency without external interference is to encourage cross-border trade. Countries turn to countries with cheap products and services, so it helps the economy by increasing exportation and encouraging trade balance.

[pooya87]

That's a naive way of looking at economy. Devaluing the currency is not going to help the economy on its own. A lot of other things have to happen alongside that to maybe help the economy. The best example is China. They intentionally dump their fiat so that they can remain extremely competitive on the global stage. The reason China can do this is because Chinese economy is a productive economy not an artificial debt based and service based economy.

Any other country that does that, needs to have a growing economy with lots of products to export (and be a net exporter) otherwise the only thing devaluation of currency would do to that country is inflation and more economic hardship.
This is even worse if the country in question is a net importer (has a huge trade deficit).

P.S. The COVID situation you mentioned and the money governments around the world printed was not to devalue their currency, its purpose was to inject liquidity in a dead economy so that they can overcome recession. Pretty much the same thing a lot of countries like US are doing starting from last year. The devaluation was the side effect.

[Die_empty]

That's a naive way of looking at economy. Devaluing the currency is not going to help the economy on its own. A lot of other things have to happen alongside that to maybe help the economy. The best example is China. They intentionally dump their fiat so that they can remain extremely competitive on the global stage. The reason China can do this is because Chinese economy is a productive economy not an artificial debt based and service based economy.

Any other country that does that, needs to have a growing economy with lots of products to export (and be a net exporter) otherwise the only thing devaluation of currency would do to that country is inflation and more economic hardship.
This is even worse if the country in question is a net importer (has a huge trade deficit).

P.S. The COVID situation you mentioned and the money governments around the world printed was not to devalue their currency, its purpose was to inject liquidity in a dead economy so that they can overcome recession. Pretty much the same thing a lot of countries like US are doing starting from last year. The devaluation was the side effect.

Some economists will claim that the devaluation of currency will reduce imports and promote export. They claim that it will make the cost of producing cheaper thereby making local goods more acceptable in both local and international markets. Let me speak for my country, this devaluation policy has destroyed our economy totally. Industries in my country depend solely on imported raw materials, machines, and even personnel. Most of these resources are paid for in mostly the US dollar which makes these payments more expensive. So it is useless to devalue our currency because it will increase the cost of production, kill local industries and make locally produced goods less competitive in local and international markets.

They also claim that a devalued currency will make debt payments cheaper. This has also destroyed our economy because most of our debts are external debt serviced in stronger foreign currencies. And they will never accept our local currency for repayment.

Other nations might have done it and achieved economic prosperity but from my experience, the devaluation of currency is a strategy to make poor nations poorer and rich ones more prosperous. This is because it has caused inflation and an increase in the prices of local goods. Each time our currency is devalued we experience a higher level of suffering and hardship.

[Faisal2202]

To be honest never heard of such strategy. I mean you must be pointing toward Us dollar because they are also devaluing there currency besides that, many other country's money also losing value like the Chinese yuan even my own country's currency is losing its value. Point is, if some country will try to devalue its currency on its own like by own means (manipulation) then things might slip out of hands and it might be the most dangerous strategy ever because what if things turn upside down.

Let's say, in devaluation of a currency one could face high inflation rate, debt ceiling causes, many bankruptcies, people might lose trust on that currency and will flight away, besides that there are many other import and export outcomes one have to face. I think instead of adopting this strategy to dwindle the economy they should work on other factors to improve things like the one you already mentioned.

[Poker Player]

Currency devaluation is a complex issue that should not be considered in isolation from other factors, as pooya87 has explained very well.

Apart from what he has said I wanted to add that inflation is a double-edged sword that many politicians play with because they are addicted to spending in a way that gives an initial stimulus to the economy but in the long run is counterproductive. In general, politicians do not stop increasing public spending, and if they do it for example by giving subsidies for the most disadvantaged or certain sectors to develop, at first those subsidies stimulate those sectors or the economy around those classes disadvantaged by the initial spending. Now, since this is not done with money that they have but that they create out of nothing, what happens is that if a politician distributes $500 a month payments for the underprivileged, after not long those $500 have the purchasing power that $400 had shortly before they started distributing the payments. What does the politician do? Raise the amount of what he gives, and maybe he raises it to $550 or $600, but in terms of purchasing power it ends up being worth less than the $400 it was before. This has been typical in South American economies and other countries, where in the end the bill has many zeros but in reality it has less purchasing power than a $1 bill.

This is explained in a general way, because for example the USA also prints money for a lot of incentives, subsidies and payments, but its economy allows it to back it up in a certain way, with a devaluation that compared to that of countries like Venezuela or Argentina is nothing.

[Spaceman1000$]

Currency devaluation is a complex issue that should not be considered in isolation from other factors, as pooya87 has explained very well.

Apart from what he has said I wanted to add that inflation is a double-edged sword that many politicians play with because they are addicted to spending in a way that gives an initial stimulus to the economy but in the long run is counterproductive. In general, politicians do not stop increasing public spending, and if they do it for example by giving subsidies for the most disadvantaged or certain sectors to develop, at first those subsidies stimulate those sectors or the economy around those classes disadvantaged by the initial spending. Now, since this is not done with money that they have but that they create out of nothing, what happens is that if a politician distributes $500 a month payments for the underprivileged, after not long those $500 have the purchasing power that $400 had shortly before they started distributing the payments. What does the politician do? Raise the amount of what he gives, and maybe he raises it to $550 or $600, but in terms of purchasing power it ends up being worth less than the $400 it was before. This has been typical in South American economies and other countries, where in the end the bill has many zeros but in reality it has less purchasing power than a $1 bill.

This is explained in a general way, because for example the USA also prints money for a lot of incentives, subsidies and payments, but its economy allows it to back it up in a certain way, with a devaluation that compared to that of countries like Venezuela or Argentina is nothing.

You made an excellent and explicit explanation About this devaluation concept, but why would any politician want to adopt such policy since as you right said, that in the end the bill has more zero but in reality, it has less purchasing power than $1 dollar bill, but yet at the end the concept will be implemented  because I believe any concept the government is adopting, is to improve the economy but reverse is the case here.

[franky1]

That's a naive way of looking at economy. Devaluing the currency is not going to help the economy on its own. A lot of other things have to happen alongside that to maybe help the economy. The best example is China. They intentionally dump their fiat so that they can remain extremely competitive on the global stage. The reason China can do this is because Chinese economy is a productive economy not an artificial debt based and service based economy.

Any other country that does that, needs to have a growing economy with lots of products to export (and be a net exporter) otherwise the only thing devaluation of currency would do to that country is inflation and more economic hardship.
This is even worse if the country in question is a net importer (has a huge trade deficit).

P.S. The COVID situation you mentioned and the money governments around the world printed was not to devalue their currency, its purpose was to inject liquidity in a dead economy so that they can overcome recession. Pretty much the same thing a lot of countries like US are doing starting from last year. The devaluation was the side effect.

to clarify a few things...
when covid happened china created money. to then buy infrastructure (hospitals) so they had a real GDP increase of new jobs, new equipment, new services..
however this increase in GDP would have caused china to take the top spot in GDP world rankings..
western countries did not like this. so they done 'stimulus cheques' to print money for spending on things. but this spending is temporary as they did not create any physical infrastructure of new jobs, new services

so the western stimulus /QE money did keep western countries in the rankings to prevent china and russia from being top superpowers in statistics.. but.. that ranking hold was temporary. and then after the QE/stimulus funds 'trickled-up' to off shore funds and tax exempt loopholes, things went bad
yep when US paid other countries for vaccine research and manufacturing. and paid international companies for the medical care insurance/hospital care.. the US print money moved offshore thus not circulating to benefit/sustain the domestic economy.

meaning due to having stimulus/QE DEBT on US numbers but no domestic infrastructure increase to offset it. things started to go negative in real world GDP stats for US.. so more was needed to be done.

in conjunction with the cut-off of russian oil, and removing the reliance of chinese produce. the next step was to try to knock russia and china down a peg in their exports, hoping this will knock their GDP positions down.. however western countries did not invest in new infrastructure/jobs to solidify western positions of self reliance. thus western countries got hit again negatively

western countries then wanted to reboot domestic infrastructure value by suddenly wanting to build more houses(large value product sales stimulus). by offering low rate mortgages to stimulate a real estate boom.. this too was short lived. because greedflation priced people out of home buying even with low rate loans.

this greedflation vs low rate loans caused the deficit between cost of living income amounts vs greedinflation... which due to lack of home purchasing didnt help stimulate the economy.. thus more things negatively happened. where the greedflation became statically inflation.. which then raised mortgage % interest rates. thus again western countries real estate boom has now dropped off and now worse than 3 years ago due to higher interest rates and lower income

..
all of this saga of the last 3 years all stemmed from the top brass of western countries ruining real world economy to try to falsify a statistic(GDP) of trying to keep the US in position 1 of GDP.. a statistic thats meaningless to average joe citizen. but meant alot to the top tier politicians of western economy

when western countries think the use of DEBT as a asset to pump a GDP stat is good(facepalm). they are not thinking beyond their election cycles tenure. they are just scrambling to not make china/russia be the new worlds superpower during their political tenure

[Ucy]

Well, if your country's currency is weak, the purchasing power of people with stronger currencies would increase over your local products. So, they could sell their currencies for your currency in order to buy your products cheaply, benefit from cheap investments, etc... and that could help the economy of the weaker currency. But you must be careful what and how you sell to certain people with stronger currencies else they take advantage of the country and leave little for you to take care of your needs. Becareful selling things that are too sensitive to be sold to people who are not patriotic enough or don't love your country/people... basically selfish people who would want to exploit/enslave you or own great things or anything too sensitive for non-patriots or selfish people to own.

[Dr.Bitcoin_Strange]

Nope, I don't believe this is the right approach to helping build an economic system that is dwindling. There are other more healthy ways of improving the economy, and in my opinion, I will suggest that the rate of importation be discouraged to the minimum and the rate of production be increased, giving more job opportunities to those that are unemployed and giving opportunities to entrepreneurs to help empower their businesses. Also, there should be a rise in the quality of production for exportation, which should be very high compared to importations. I know that the devaluation of local currency only ends up reducing the purchasing power of that currency in the market, adding to the growth of inflation, so I don't see how the devaluation of the local currency can help build the economy.

[davis196]

Currency devaluation makes the imported goods more expensive and the exported goods cheaper for the foreign buyers(which means more desirable). In theory, both effects could help in boosting the domestic industrial production. In reality, most countries around the world depend on importing raw materials for their industries. Devaluing the national currency means that the raw materials will become more expensive, which  means that the end products will become expensive. This leads to more inflation and a lower standard of living for the working class.

[slapper]

Devaluation? At best, that is a band-aid fix. Yes, troubled nations like Ghana and Zimbabwe exist. Devaluing their currency, though? That's merely a band-aid solution to a much bigger issue.

In fact, exports might increase as a result of currency devaluation as their goods become more affordable to customers outside. what about imports? For the residents, they become more pricey! Not to mention, it damages the confidence of the world community and prospective investors. Who would want to make investments in a nation that might suddenly depreciate its currency?

When you mentioned enhancing the production base, exports, and business accessibility, you were correct. And undoubtedly, these economies are nourished by foreign direct investment. These countries should concentrate on structural reforms and infrastructure development, if I were to give them advice. Instead of scaring away investors, they should embrace them. But what do I know?

[Crypt0Gore]

What is there to discuss about when most third-world countries are running on debt? Instead of fixing the problem they are focusing on something else, productivity is the answer, if a country is more concerned on been productive it won't have many problems and it will stand out among many other countries.

But they won't do it, such countries are dwelling in a sea of corruption and those who are supposed to start fixing the problem are the ones adding more to it, it doesn't take long to start destroying everything, but to fix things it can take decades.

If your country has products that many other countries need and you start exporting due to large demand, this will make such a country a very strong one.

[Peanutswar]

If your country has a really good leader they can easily manage to increase your GDP, one of the best ways is to lessen the imports to your country instead of increasing the number of exports so the profit is all in your country with the number of supplies, but still it depends if this becomes demand, with this state we experience previously some of the country make a debt into large countries just to survive, to make your country recover they must need to make a good establishment that generates income to pay those debt, but currently the inflation goes high. better if you have a good government management make your country stable at least or else it will ruin like happens to other country with poor management.

[EL MOHA]

I don’t think debt is the problem of dwelling economy this days because of you look at the debt chart the top highest debtors are mostly the developed countries like China, USA, Japan and most of the European countries, this simply showed that debt isn’t the problem but just like you said productivity. If you look at this under developed countries, one thing that is keeping them at bay is lack of local production. The biggest flex in the Chinese economy today is they produce virtually everything.

So with the natural resources blessed to this developing countries if they actually start there own production and seemingly exports them out this is will give the countries currency much value if at all the currency for exchange is their local currency and it would lead to strengthening the economy

What is there to discuss about when most third-world countries are running on debt? Instead of fixing the problem they are focusing on something else, productivity is the answer, if a country is more concerned on been productive it won't have many problems and it will stand out among many other countries.

[icalical]

From what I understand the idea was by devaluing currency a country is mainly to attract export because the price for their product and service will cheaper in the international market. That being said, all of those is just an idea, the practice was not that easy, most of the times when the export target is achieve or even surpass the production is stuck, thus it's not really give significant impact. Devaluing currency must also be supported with other macro economy policy that's not so simple.

[pooya87]

Some economists will claim that the devaluation of currency will reduce imports and promote export.
They also claim that a devalued currency will make debt payments cheaper.

The more I learn about economy the more I realize that it is the most complicated topic and there is no rule that fits them all. There are just too many variables that we can't make claims such as these. Your example was an excellent one proving that, specially when we look at other opposite cases like China.

Now, since this is not done with money that they have but that they create out of nothing, what happens is that if a politician distributes $500 a month payments for the underprivileged, after not long those $500 have the purchasing power that $400 had shortly before they started distributing the payments. What does the politician do? Raise the amount of what he gives, and maybe he raises it to $550 or $600, but in terms of purchasing power it ends up being worth less than the $400 it was before. This has been typical in South American economies and other countries, where in the end the bill has many zeros but in reality it has less purchasing power than a $1 bill.

It is aptly named "national debt", they say the money the governments print out of thin air is a tax on every single citizen. Good thing we have bitcoin with a capped supply...

This is explained in a general way, because for example the USA also prints money for a lot of incentives, subsidies and payments, but its economy allows it to back it up in a certain way, with a devaluation that compared to that of countries like Venezuela or Argentina is nothing.

To be fair US is an exception and it is not US economy that backs the ridiculously huge amounts of printed money, it is the fact that US doesn't print dollar for its own citizens, they print dollar for the entire world. Basically they print it out of thin air then go abroad to purchase goods and resources with that worthless piece of paper hence exporting their inflation to other countries.
This is exactly why the world has been trying so hard to get rid of the dollar in the past couple of decades, pretty much after Bretton Woods fell apart.

[lionheart78]

I see your point @OP, by devaluing the currency of a country, it can offer cheaper options for other countries.  It is more like sales at a discounted price.  With lower-value currency, you can offer the services and trades cheaper.  The goal of this kind of method is to lure more investors and trade partners to the country by making them think that their money can produce more in a country with a devalued currency.  It is more like selling in bulk at cheaper prices which in return gives better profit.

If that plan pulls through, I would agree that it can help a dwindling economy to rebuild itself.

[Spaceman1000$]

I see your point @OP, by devaluing the currency of a country, it can offer cheaper options for other countries.  It is more like sales at a discounted price.  With lower-value currency, you can offer the services and trades cheaper.  The goal of this kind of method is to lure more investors and trade partners to the country by making them think that their money can produce more in a country with a devalued currency.  It is more like selling in bulk at cheaper prices which in return gives better profit.

If that plan pulls through, I would agree that it can help a dwindling economy to rebuild itself.

I get your point, but what happens to expanding your production base, what happened to lobbying for foreign direct investment and all other means of improving the economy, because in doing what you just said, it means your currency will have low economic value at the international market, hence you cannot have much negotiation powers at the international market.

[Synchronice]

That's a naive way of looking at economy. Devaluing the currency is not going to help the economy on its own. A lot of other things have to happen alongside that to maybe help the economy. The best example is China. They intentionally dump their fiat so that they can remain extremely competitive on the global stage. The reason China can do this is because Chinese economy is a productive economy not an artificial debt based and service based economy.

Chinese attitude looks very strange for me. If we assume that they devalue their currency in order to be competitive manufacturer and exporter with the aim to make everyone dependent on them and then quickly radically change the situation for their own benefit, then yeah, this makes sense. Otherwise, if they don't intend to do this, for me it looks like they are sacrificing themselves by working hard jobs for a shit pay. But at the same time there are probably countries like Mexico, India, Uzbekistan who are willing to probably work harder and with much lower pay. I don't really know what to think, the whole world economic model makes me kinda confused.
There are countries that are less educated than china and still work less and live way better than Chinese, how? I think it's not all about wealth inequality after all.

Any other country that does that, needs to have a growing economy with lots of products to export (and be a net exporter) otherwise the only thing devaluation of currency would do to that country is inflation and more economic hardship.
This is even worse if the country in question is a net importer (has a huge trade deficit).

This is truth! People often think that if their currency gets devalued, they will be able to buy more products in lower price, everyone thinks so but when things come in action, they start saving of their money, are making even more savings, are buying even cheaper products instead of slightly expensive ones and overall economy goes down.