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
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. 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. Devaluation of akistan Rupee will mean devaluation of akistan 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 e uilibrium. !t best, it serves as a wa"e#up call for the country to get its

Reasons of devaluation
Deficit financing Trade deficit Decreasing supply of USD in the market The unsta le economy Increase in foreign de t lia ility

Tools for decreasing devaluation of money

!olitical sta ili"ation #est service offered $ffective resources utili"ation Rising e%port of finished goods and Decrease in import