Devaluation Of Currency

Devaluation of money and its impact on economy Muhammad Tahir

What is Devaluation? Devaluation means decreasing the value of nation's currency relative to gold or the currencies of other nations.

Impact on economy Ø The common man is finding it difficult to buy basic food items. Massive devaluation of rupee during the last few weeks is affecting the purchasing power of common man. Wheat is now getting out of reach. Ø Rising of the prices of such inputs through devaluation, would raise industrial costs and reduce the intensity of capacity utilization. because of this the prices of goods is increases. Ø Devaluation of Pakistan Rupee will mean devaluation of Pakistan labour and talent in the international market evaluation will serve as a drug rather as a stimulant and cause an unprecedented inflation.

Economic Impact of Devaluation If

wages and prices rise by the same amount as the currency is devalued, the standard of living is unchanged. However, foreign saving falls, investment is decreased, and the standard of living rises less rapidly. If wages and prices rise by less than the drop in the currency, the standard of living declines. In the long run, devaluation never has a positive impact – unless the currency had been overvalued and is returning to equilibrium. At best, it serves as a wake-up call for the country to get its

Reasons of devaluation •Deficit financing •Trade deficit •Decreasing supply of USD in the market •The unstable economy •Increase in foreign debt liability

Tools for decreasing devaluation of money Political stabilization Best service offered Effective resources utilization Rising export of finished goods and Decrease in import