Currency Devaluation Trends
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Inferring from the current dollar devaluation trends, it depicts that exchange markets would be affected adversely. The US dollar will weaken against the global currencies that in turn, would affect various sectors and entities. For instance, there would be a massive mismatch in the balance of payments in that exports would be cheaper while the imports would be expensive. As a result of such a gap, consumers relying on the imports products as their raw materials would be adversely affected as the demand of the products would rise while the supply decrease hence making imports expensive. Consequently, we might observe some of firms or industries outsourcing its services abroad in an effort to remain or maintain its competitiveness in the market.
Potential inflation in the economy will be inevitable if these trends persist. Aspects such as domestic wages would reduce, which makes the country economy unsuitable for foreign workers of investors to inject their capital. As imports become expensive, cause’s cost-push inflation and an increase in aggregate demand prompt demand-pull inflation. On the other hand, our exports will be cheaper, which would be a negative incentive to the domestic manufacturers, as they would be forced to cut costs to remain competitive. Although the government might make efforts by revisiting the existing trade agreements by adopting more of protectionist policies, it should dedicate the same measures in preparing for market shocks.