The essence of the devaluation process and its consequences is constantly being studied and analyzed by the leading financiers and economists of the countries of the world. At the same time, most ordinary citizens consider this phenomenon to be a manifestation of the financial crisis. But this is a misconception. Despite the fact that devaluation entails a decrease in the value of the national currency, central banks of many countries use it as a tool for managing cash flows.
Devaluation content
The concept of "devaluation" first appeared in European countries during the time of the gold standard, when each paper banknote had a fixed denomination of gold under it. During the First and Second World War, there was a gradual outflow of money from the circulation of countries, which were necessary for the manufacture and armament of the army. Leading banks issued a large number of new banknotes, but their gold reserves were no longer confirmed, which led to the first wave of devaluation.
Today, this phenomenon in the financial sphere means the depreciation of national money in relation to the currencies of other countries. And if we give a simple definition, then with a devaluation, foreign currency is more expensive than before, and in order to buy it, you need to pay more rubles. For example, if at the beginning of 2014 the dollar was worth about 32.50 rubles, then after 11 months its value is 46.50. Consequently, the devaluation in 2014 was 43%.
Forms of devaluation
There are two main forms of devaluation:
- open, implying its official recognition by the central bank and notifying the citizens of the country about the actual decline in the value of national money;
- hidden, uncontrollable, which arises independently in the course of events taking place in the financial and political sphere of the state.
The reasons for hidden devaluation are inflationary surges, insufficient gold reserves of the country, as well as a deficit in the balance of payments, although in some cases the devaluation itself can solve this problem. For example, the cheapening of the national currency contributes to the reduction of purchases of goods imported from other countries. Due to this, the demand for the product of its own state production increases, and as a result, the state's monetary unit is strengthening.
Consequences of the devaluation process
There are different opinions about the consequences of devaluation, as they are rather ambiguous. On the one hand, if the situation is poorly managed, they can harm the country's economy, and on the other, they can revive it and lead to gradual development.
The positive consequences of devaluation for the economy and the economy of the country are:
- increase in export operations;
- predominant consumption of the national product;
- growth of GNP and GDP;
- reduction of expenditures of the country's gold reserve;
- taking measures to prevent currency speculation.
An improvement in these indicators can only happen if the country's leading experts and analysts constantly monitor the progress of the 2015 devaluation process. But if this phenomenon arose spontaneously, or as a result of the wrong actions of leading banks, then this can lead to negative phenomena:
- depreciation of monetary investments of ordinary citizens in banks and loss of their confidence in the state currency;
- an increase in the price of imported goods and a possible deficit that may arise in the absence of appropriate substitute enterprises;
- an increase in the cost of national goods if they are produced on foreign equipment or using imported raw materials;
- inflation, which arises against the background of rising import prices and artificially inflating prices for a domestic product;
- the emergence of financial risks for entrepreneurs and businessmen who work with several currencies in their activities.
The most serious consequence of devaluation is considered to be a rapid drop in the value of the state currency, which can cause a severe shock for the economy, its decline, and in the worst case - default. This will provoke an outflow of domestic capital to foreign countries, a sharp decline in entrepreneurship, an increase in unemployment, and active hyperinflation. Devaluation is a multilateral economic phenomenon that can not only act as a powerful lever of monetary regulation, but also lead to negative dire consequences in the economy, which can lead the country into a deep crisis.
