What are the effects of a depreciation of the base currency

There are several reasons for currency depreciation: 1. Excessive debt; A country facing a large amount of debt may also reduce the real value of its debt through currency depreciation. In a normal environment, investors and speculators determine the value of currencies based on key macro factors.

Countries with too much debt often experience currency depreciation and are therefore perceived by investors as overselling. Excessive indebtedness can also lead to interest payments tying up too much of the national budget, reducing national productivity and preventing economic growth. A country's credit rating can also be damaged by excessive debt, leading to a further increase in borrowing costs and harming economic development.

2. **Banking business; **Plays an important role in currency valuation. Each bank controls its own country's mintage rights and holds large foreign exchange reserves. The world's largest banks hold large amounts of foreign exchange reserves, which are regulated based on future trends.

**Banks achieve this primarily by controlling the amount of money in circulation. By lowering interest rates or reducing bank reserves, banks can make more money flow in the market. But increasing the amount of money will also reduce the value of money, which is the most basic principle of supply and demand.

3. Economic growth and banking policies; When assessing the purchasing power of a currency, investors take into account a country's growth expectations. Low interest rates lead to lower borrowing costs and increased economic activity. Therefore, an economic slowdown will lead to an accommodative coinage, which will also mean a depreciation of the currency.

4. Currency crisis; Currency crises occur when speculators quickly lose confidence in a country's economy or monetary policy, usually caused by defaulting on national debt.

The depreciation of the local currency has an impact on import and export earnings. The depreciation of a country's currency reduces the value of its own goods relative to foreign products, so that foreign people increase their demand for domestic products, and their residents reduce their demand for foreign products, which is conducive to its own exports and reduces imports; The relative increase in the purchasing power of foreign currencies and the relative inertia of depreciation of domestic goods, services, transportation, accommodation and other expenses are conducive to attracting foreign tourists, expanding the development of tourism, and promoting the increase of employment and national income.

The depreciation of the local currency also has an impact on international capital flows. If the depreciation trend continues, people will move money from their home countries to other countries, causing capital outflows.

Let's talk about the impact of appreciation, and let's talk about the good impact first.

1) Obviously, the appreciation of the national currency is a good phenomenon for the country in the whole world, because the simplest reason for the appreciation of the currency is that there are more and more people in the international market who have their own currency, which proves that people are optimistic about the future development of the country, which is also a manifestation of a country's strong hail.

2) In fact, the appreciation of the national currency does not have much impact on the people inside the country, but it is manifested in the external world, such as traveling abroad, and the same amount of money as Nian Ju originally spended, and may be able to buy more goods.

Let's talk about the negative effects.

In fact, the adverse impact of appreciation is also obvious, especially for some countries based on foreign trade production, this is more obvious, because of the appreciation of the national currency, the original foreign traders need to pay more when buying or producing the same number of goods, or the cost has risen, which will make a lot of foreign businessmen withdraw and flow more funds to countries with lower local currencies, which is actually very similar to the problems faced by China now, and now the United States has been asking China to appreciate RMB. Looking at the appreciation of RMB in the past period, more and more foreign businessmen have withdrawn funds to India and other countries, and you can understand this very well.

Therefore, a country's currency is definitely as stable as possible, and too large upward or downward fluctuations will affect the country's development to varying degrees.