Currency depreciates when the value of the currency falls in floating exchange rates. It is a fact that modern economies have a major problem of currency depreciation in the modern world. The economies have changed over time even if it is a developed or a developing economy. The trends and policy have changed that has introduced new economic issues all around the world. One of the major issues is currency depreciation. Many major currencies today are depreciating; Even the US dollar. The reasons behind this currency depreciation could be listed below:
- Global debt is increasing day by day. Today countries are highly relying on debt. This has a crucial contribution to the trend of currency contribution.
- The implementation of the “easy” monetary policy is another reason. Taking the example of the US dollar, “easy” monetary policy means lowering the interest rate and increases the money supply because the dollar couldn’t be backed by a commodity like gold and silver. This lowers the value of existing dollar money.
- In order to increase their exports, many major countries are intentionally depreciating their currencies. This goes with the case of China. For countries like China, it is important that the demand for their exports should remain high. This also causes currency depreciation.