What effect does devaluation have on a nation鈥檚 currency?

What effect does devaluation have on a nation鈥檚 currency? Can you think of a country that has devaluated or revaluated its currency? What have been the results?|||I think of one qualifying currency, and that is The Japanese Yen.





Note it is also true the Yuan of China is also pegged, until recently to the U.S. dollar. So as dollars dropped in value, the Yuan does too. It is also true that Yuan is kept artificially devaluated as its economy heats up, with Yuan pegged to the dollar relatively it would not swing up in value.





Qualitatively... the results are





Japanese yen


-a carry trade and cheap borrowing rates (currently at .5% and some people use that rate to gamble their housing mortgages. (its alot cheaper than other countries interest rate)


- that yen has been cheap as you can borrow as much as you need very cheap , so its supply is abundant coming from the central bank and its associated banks. This has led Japanese labor to be very cheap and so have its goods recently.


-In qualitative terms devaluation wasnt win -win. Scarce materials such as oil are expensive in Japan when buying with Japanese currency or income. The currency has been constantly devalued and that is how it affects its people.








You know there are some similar things with Japan and the U.S.


-this is how:


-Material costs are soaring and it is worse for their domestic economies as payment of their domestic currency is worth less than others. In turn these countries can have real problems affording to make goods or use transport that makes the wheels of an economy productive in the first place.


- Low unemployment


- investment in countries of devalued currencies is a bargain.. so businesses have the incentive (normally) to be in the cheap currency countries and hire. Land is cheap, buildings are cheap, labor is cheap compared to other higher valued currency countries.


-This leads to high hiring as businesses want to have work sent to where they can pay the least and get the most (be it skills, or just cheap labor) for the money.








The results as you can see in U.S. China Japan is high hiring , lower wages, trouble affording the scarce resources, excessive consumption, inflation (when money depreciates you either invest or spend, but saving is for people who want to flat out lose money)





Another thing and dont forget is that the cost of interest rates affects how much of the activity goes on in a country. High interest rates, causes the economy to cool as borrowing costs are high. Low interest rates fuels money expansion and supply. How does that work? Loans are newly created money that get destroyed after they are repayed. So money is naturally higher in number in a expansion period.





Money normally is worth less as a relationship and has a low interest rate. When interest rates go higher, money can become worth more. But compared to the rest of the world, if your country is too expensive to do business and growth slows a currency can become worth less due to risk in the economy.





Simply, Its about moderation in devaluating or appreciation a currency that is healthy for economy's in the world.|||Wow, that's the same exact question that's in my Business A Changing World textbook. That's hillarious, someone would actually look for the answer on Yahoo Answers....

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