Devaluation is a decrease in the value of a currency relative to the value of gold or other currencies. In other words, devaluation is depreciation. Its main function is to make export goods (goods that go out of the country) cheaper and imports (goods that go into the country) more expensive. Devaluation is often used to stabilize the economy in a country. It is usually used in times of crisis when the country has a shortage of foreign exchange reserves.
What does the exchange rate depend on?
Now the currency is a commodity for which there is a separate market. Its participants are various banks, including central banks, as well as large companies. They also buy and sell currencies. Central banks have a great influence on the exchange rate.
The dependence of the exchange rate on supply and demand is enormous. But it is also worth considering the dependence on many other conditions, for example, fundamental ones, such as the state of the trade balance of a certain country.
The exchange rate is influenced by political and economic factors of the country. They can be both internal and external. Domestic economic factors include inflation, GDP, the state of the labor market, and the real estate market.
All this information is usually exposed at a certain time. Significant deviations of the data from the expected values of economic indicators can lead to a sharp jump in the exchange rate.
On these grounds, central banks decide to change rates in a positive or negative direction. If economic indicators show positive dynamics, when rates rise, which is reflected in the strengthening of the national currency. In the case of a stable decrease in economic indicators, on the contrary, a decision is made to reduce rates, which, as a rule, leads to a weakening of the national currency.
Who benefits from the depreciation of the ruble?
Most of all, the depreciation of the ruble is beneficial to those who have expenses in rubles and revenue in foreign currency.
Import substitutes. Domestic producers will gain a competitive advantage as a result of higher prices for imported products. This category of producers will receive “power” over the devaluation for the growth of the country’s GDP.
The main important item is food. The food, light, and textile industries will receive the strongest impetus for growth. As well as the benefits will be received by domestic engineering products, which are actively being replaced by imports.
Exporters. In most cases, oil and gas producers. The export revenue in terms of rubles will grow, as well as the profit itself. This will be a positive trend for the economy, companies, and their employees, but a narrow choice of raw materials will not allow for an increase in production, and the impact of devaluation on GDP will not be as large.
Workers. People will get more jobs as well as higher wages. It is possible that they will also receive some benefits by increasing the budget if additional budget revenues from the devaluation are spent on the needs of the people.
What to do in a situation of devaluation?
The first thing to do is not to save money in piggy banks, but to put it at interest on a bank deposit. Also, divide savings into different currencies and precious metals. Buying real estate is a good way to invest capital.