The falling value of the currency does not only damage the economy but it has positive impacts as well. Countries like China intentionally devalue their currency in comparison to the US dollar to keep their exports competitive in the market. Devaluation of the currency is also done by the central banks when they declare any currency weaker in comparison to dollar value. Devaluation is important because:
WHY DEVALUATION OF CURRENCY IS IMPORTANT?
- The exchange rate will make exports more competitive and appear cheaper and foreigners prefer cheap exports in international markets. This increases the demand for exports.
- The devaluation of the currency could fuel economic growth. The aggregate demand for exports is raised in comparison to imports. This increases the real GDP of the country.
- The devaluation of the currency decreases the current account deficits by increasing the demand for exports. The declining number of imports reduces the current account deficits.
- Due to the decreasing values of current account deficits, the country has to service a lesser amount of foreign debts. Foreign debts are one of the greatest challenges for developing countries today.
- The cheaper exports boost the demand for exports which is very beneficial for the domestic industries. It increases job opportunities within the country.