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What is currency war?





baboosaa
I did read some news and articles about this hot currency war -- competitive devaluation of the currency.But here's the part that i did not understand. How can a country devalue its currency by printing more money?
liljp617
It's difficult to give a detailed answer as there are a number of economic concepts to understand in relation to printing money and currency value in a market like we have today.

To put it simply: When a government increases the quantity of currency in the market (by printing more), the overall supply of money in circulation increases. Assuming there isn't an increase in production (of goods/services) following this additional printing, then there is more money to spend on the same amount of goods/services as there was before the printing. What you get is a currency that is no longer as valuable as it once was in terms of purchasing power.

Exports are now relatively cheaper to foreign nations, as less of their currency is needed to get the same amount of currency from the "devalued nation." Imports, of course, are now relatively more expensive for the country that devalued its currency, because it takes more of the devalued currency to get the same amount of foreign currency.



I'm by no means an expert in economics. There's probably some large holes in what I said and hopefully somebody can explain it more clearly in a simple manner, but there's my attempt Very Happy
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