Disadvantages of Currency Devaluation

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Currency devaluation have pros and cons as everything has some good points as well as bad, it is near to the inflation as imported goods or raw materials are highly expensive that cause increase in the prices which pull inflation.

For example if United States of America has to buy some material of worth $10,000 from Kuwait they will have to pay Kuwait in Dinar, which will end up in exchange of money this will depreciate the currency.

Some major disadvantages of devaluing of the currency is as follow

  1. Dearth

Hands fighting for bread

 

All the imported stuff will reach to very high prices due to which the expenditures of a normal citizen will increase.

Are Small Cap Stocks Riskier?

  1. Inflation

Currency

 

The increase of money supply will increase the domestic demands due to which cost of domestic goods will increase and it will cause inflation.

  1. Trust

Broken Trust

It will keep the foreign investors away from the country due to trust issues . The citizen of the country will also start losing trust in the government and they won’t be saving money in the banks more likely they will start investing in different industries or projects.

For example:

Real-Estate, Gold, Silver or maybe in multinational companies.

  1. Debts

LOAD OF DEBT SHOWN IN THIS IMAGE

If the country or a citizen has foreign debt, after the devaluation:

they will face a sharp increase in the cost of the debts.

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