Devaluation of U.S. Dollar

Introduction

The loss or decrease in the purchasing power of the national currency against foreign currencies is known as devaluation. This may be due to economic and political reasons.

The devaluation may occur in a single country or all of which are under the gold standard regime. Devaluation can be done annually, from time to time, gradually or on daily basis. However, this economic phenomenon is not easy to implement. It impacts the import sector, especially the food industry.

Devaluation is a reduction of the nominal value of one currency against other current foreign currencies. The devaluation of a currency can have many causes, including lack of demand for local currency or an increased demand for foreign currency. This may occur because of lack of confidence in the local economy and its stability. The opposite process of devaluation is called revaluation. In a free exchange rate system, where the intervention of the central bank is zero or near zero, the devaluation is known as depreciation. The currencies of the countries represent a value, which is related to the wealth of the country. The coin itself has no real value, but is only representative of the monetary worth of the state (Cooper, 1971, 46-59).

Impact of Devaluation

The main consequences of the devaluation are as follows:

It decreases the purchasing power of the general public.

Capitalization of the companies, given that the currency's purchasing power is low and difficulty in replacing capital goods.

Workers demanding higher wages, thus resulting in wage pressures.

Unbalanced consumption pattern due to low purchasing power

Individuals most affected by devaluation include employees and retirees, as the same salary may not purchase goods and or services that previously had a lower price. Those deal with debts in dollars and receive their income in this currency also suffer the consequences. By contract, the private utilities have their rates in dollars. If this keeps up, there will be a notable increase in services and utility charges such as electricity, gas and telecommunications. The importers also feel the consequences against the rise of inputs from abroad. However, for exporters, it will have significant benefits, which would be compensated if the government decides to reinstate the deductions for foreign sales (Prebisch, 1950, 57). The properties could lose value in dollar prices. In the case of rental property owners and would not receive the same value translated into U.S. dollars.

The Devaluation of Dollar

One of the inevitable consequences of the economic crisis has been the depreciation of the almighty dollar. Billions of dollars have left the economy of the United States to seek their fortune or better returns elsewhere. This has caused the fall of the dollar. The devaluation of U.S. dollar has been very profitable to the exporters because the price of their products fell in the international markets, resulting in high demand and more profit. The value of the dollar against other world currencies is only one way to see the value of money and not necessarily the most affecting the domestic ...