How does a country s currency depreciation boost exports? What are the conditions?

The exchange rate between the local currency and the foreign currency is actually the purchase of foreign currency by the central bank of the country (and vice versa). For example, the exchange rate of the US dollar and the yuan. It is the People's Bank of China that buys dollars in yuan **, which is now about the same.

Assuming that the value is depreciated, the central bank is willing to buy 1 dollar with 8 yuan. The original enterprise of a thing was 62 yuan, which is 10 US dollars. Now that it has depreciated, there are only dollars.

Of course, it will promote exports, which is equivalent to China as a whole as an exporter to reduce sales. However, the RMB that the company got was still 62 yuan.

It can also be understood as: the central bank buys the goods of enterprises in yuan, and sells them abroad in US dollars!

1.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.

2.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.

Extended information] Currency depreciation to play a role in improving the balance of payments, there must be the existence of idle resources, only when there are idle resources, after the devaluation idle resources flow into exports, product production departments, exports can be expanded. Second, export expansion leads to the growth of national income, and depreciation can ultimately improve the balance of payments, and the marginal absorption propensity should be less than 100%, so that the increase in national income during depreciation will be greater than the total absorption, and the balance of payments can be improved. The absorption analysis method also puts forward its own policy matching scheme to solve the problem of imbalance in the balance of payments, such as the existence of idle resources, the use of currency depreciation policy and expansionary fiscal and monetary policy collocation, if there is no idle resources, the use of currency depreciation policy and contractionary fiscal and monetary policy collocation, the method of currency depreciation to improve the balance of payments.

The principle of absorption analysis tells us that the existence of idle resources is an important condition for currency depreciation to improve the balance of payments, but analyzing the actual situation of exchange rate depreciation countries, especially Southeast Asian countries, in recent years, the "bottleneck" effect of capital shortage is an important reason for the failure of the balance of payments effect of currency depreciation. Although in the financial crisis, along with the exchange rate, the production recession caused by the unemployment of workers, but at the same time as the exchange rate ** appeared a large amount of capital outflow, idle labor resources and capital shortage coexisted, the shortage of capital limited the use of idle resources, and could not form a new production capacity to increase national income, at the same time, the total absorption formed by consumption and investment should be tightened but difficult to reduce, it is difficult to ensure that the marginal absorption tendency is less than 100%, therefore, despite the currency depreciation, it is not possible to improve the balance of payments.

Depreciation means that the same amount of local currency can be exchanged for less foreign currency, that is to say, the same amount of foreign currency can be exchanged for more local currency, so the impact is; a, it is conducive to increasing exports. b, it is conducive to curbing imports.

Extended Materials

The benefits of currency depreciation

After the depreciation of the currency, due to the decrease in imports, the competition in the domestic sales market will be reduced, the sales of domestic goods will increase, and the number of jobs will increase; And due to the increase in exports, the profits of exporting enterprises will increase, which will also lead to an increase in employment opportunities.

The disadvantages of currency depreciation

First, domestic prices have appeared, leading to inflation.

Second, there will be a large outflow of funds, and there will be instability in the financial market.

Third, the cost of studying abroad and traveling has risen.

Fourth, the pros and cons of domestic prices: consumer prices**; ** and the property market ****, the asset bubble burst.

1.Imports affect prices: prices of production and consumer goods**.

The depreciation of the currency exchange rate will cause the **** of imported goods in the country and promote the overall price level to rise. The country needs to import a large amount of oil, iron ore, timber, soybeans, grain and other production and consumer goods every year, which are settled in US dollars. If the currency continues to depreciate, the imports of these consumer goods** will increase, which will lead to an increase in the cost of the entire industrial chain, which will eventually be passed on to consumers and cause inflation.

2.Capital flows affect prices: the property market bursts.

The continuous depreciation of the currency exchange rate will cause international capital investors to have pessimistic expectations, causing them to sell (sell) a large number of **, real estate in China, etc., and then use the realized currency to exchange for foreign currencies such as US dollars and flee abroad (hot money flight). As a result, the property market continued, and the domestic asset bubble burst.

Pros and cons on domestic prices

1.Currency depreciation, domestic consumer prices will definitely be **.

2.Domestic depreciation of the currency, i.e., excessive issuance. This will lead to the expansion of assets such as the property market.

3.The international depreciation of the currency, that is, the international market is not optimistic about the country. Then, there will be capital flight, which will lead to the bursting of the asset bubble in the ** and the property market.

After the currency depreciation, because the export goods ** are determined in advance, the exporter will definitely suffer losses, but foreign buyers will increase their purchases, and the ** imported goods are determined by foreign countries, and they must pay more when buying, so the depreciation is conducive to exports and is not conducive to imports.

Effect of currency depreciation on exports As a domestically produced export product, the cost of production is affected by the raw material**, and the commodity ** (local currency**) expressed in the local currency is affected by the domestic value of the local currency. In different cases, exchange rate declines have different effects on exports** and foreign currencies** (agricultural products denominated in foreign currencies**) of exports, and thus on exports**.

The impact of currency depreciation on imports Changes in the relative nature of imports and exports. Imported goods are produced in foreign countries, and their foreign currency** will not change due to changes in the exchange rate of other countries. The decline in the exchange rate of the local currency will depreciate the local currency, and the conversion of the foreign currency** of imported goods into local currency will increase the number of goods** expressed in the local currency, resulting in a decrease in imported goods.

The national currency has depreciated.

Your cost is lower than that of other countries.

Your cost is low.

The foreign exchange you earn from exporting abroad is converted into your currency.

To put it back in perspective. If the country's currency appreciates.

Your costs are higher than those of other countries.

And the higher your cost, the less profit you receive from exporting.

I don't know how to explain it, do you understand?

The depreciation of the local currency, each unit of foreign currency can be exchanged for more local currency, the depreciation of a country's currency by reducing the ** of domestic goods relative to foreign products, so that foreign people increase the demand for domestic products, and domestic residents reduce the demand for foreign products, which is conducive to commodity exports.

The depreciation of the local currency means that the domestic currency has become less valuable than the foreign currency, so that each unit of foreign currency can be exchanged for more local currency, and the local currency exchange rate will decrease. After the depreciation of the local currency, a country's income will often be improved, and the proportion of the foreign trade sector in the entire economic system will expand, thereby improving the degree of opening up of the country to the outside world, and more products can compete with foreign products. The depreciation of the local currency also has an impact on prices.

On the one hand, the expansion of exports has caused demand to pull up prices; On the other hand, by raising domestic production costs and driving up prices, the impact of currency depreciation on prices will gradually spread to all commodities, which will easily lead to inflation.

The depreciation of the local currency, the most direct impact is the commodity ****, inflation, because of the import of goods, resulting in the cost of imported raw materials rising, prices, at the same time, exports will increase, because exports are cheaper, exports will increase significantly. In fact, in the long run, if the local currency depreciates, although the commodity is the first, it will promote the development of the domestic industry, and the domestic related enterprises will improve their competitiveness in the face of competition, and the cost of external enterprises from domestic procurement will also decrease, and the price will not appear significantly. A depreciation of the local currency will increase the competitiveness of exports, but the cost of imports will rise, and this cost advantage will not be sustainable.

The reasons for this depreciation are that there is too much debt, and a country facing a large amount of debt may reduce the real value of its debt through currency depreciation; Banking, where banks achieve their goals 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.

economic growth and banking policy; currency crisis, etc.

The depreciation of the local currency means that the foreign currency appreciates, and the same commodity needs to cost less foreign currency, so that there will be more competition in the international market, that is, it will be more conducive to domestic exports.

The products produced are the same in the country, but in foreign countries, they are lower than before the depreciation (assuming that 1a yuan = 10b yuan, my product ** is 1a yuan, at this time a yuan depreciates, 1a yuan = 5b yuan, and it is cheaper to buy products with b) is naturally conducive to exports.

By taking advantage of the changes in the foreign exchange rate of the local currency, the foreign currency** of export goods and the local currency** of imported goods can be adjusted to achieve the purpose of adjusting the balance of payments.

When there is a deficit in the balance of payments, the depreciation of the local currency is used to reduce the foreign currency of exports, which promotes the rise of exports, and the local currency of imports rises, and the import of imports decreases, and the balance of payments is adjusted.

Conditions: The other party does not retaliate; The local currency depreciates externally faster than internally (inflation); To meet the Marshall Lerner condition, that is, the absolute value of the sum of the **demand elasticity of domestic exports and the **demand elasticity of domestic imports** is greater than 1, that is, the degree of response of imports and exports to ** changes is greater.

The depreciation of the local currency will lead to a further deterioration of the balance of payments before it improves. In most cases, the depreciation of the local currency will worsen the conditions of a country, which will only improve when the elasticity of demand is greater than the elasticity of supply.

Yes. When the local currency depreciates and the goods exported by the country are denominated in other currencies, the international competitiveness of products will be enhanced, exports will be promoted, and exports will rise. At the same time, when the local currency depreciates, the purchasing power of the national currency decreases internationally, and the import of foreign goods** rises, resulting in a decrease in import demand.

So imports decrease, exports rise, the foreign trade deficit decreases or the foreign trade surplus increases, and the balance of payments improves.