Decrease in the value of the national currency. What is the difference between devaluation, inflation and denomination, what do these processes depend on and how are they related to each other? The disadvantages include

Decrease in the value of the national currency. What is the difference between devaluation, inflation and denomination, what do these processes depend on and how are they related to each other? The disadvantages include

22.05.2024 Symptoms

The devaluation of the ruble, which has been steadily observed over the last quarter of a century, indicates that something is wrong in the country’s economy. Large territories, huge resources, powerful industry, technologies that make it possible to launch spaceships into space, build advanced military equipment - Russia had and still has all this. But there is no strong, stable currency that would allow the population not to keep their savings in dollars and euros. Or does it just seem that way?

The end of each calendar year is accompanied by a large number of forecasts for the coming calendar year. Among them, one of the first questions is about national and foreign currencies. Will there be a devaluation of the ruble in 2019? These were the topics of interviews with well-known financial experts in November-December 2018. There is a problem, the very process that can comprehend the national monetary unit of Russia worries citizens, and this is not accidental.

What is ruble devaluation? If we explain what this is in simple words, it is the depreciation of the national currency in relation to other currencies and the value of gold. For comparison, we take world currencies, including not only the dollar and the euro, but also over 1.5 dozen monetary units of other countries.

What does devaluation mean in simple terms? As a result of some political and economic processes, the demand for a particular currency falls, which is why the exchange rate of other currencies rises in relation to it. But it can also be the other way around, when the demand for other currencies increases, as a result of which their exchange rate rises, which means a fall in the ruble exchange rate against this background.

The opposite phenomenon, in which a currency rises, is called revaluation. For example, in the first half of 2018, a revaluation of the ruble was observed. At the same time, the dollar exchange rate dropped from 70 rubles. for 1$ to 56 for 1$.

But after the revaluation of the ruble in 2018, devaluation began, which led to the exchange rate of 65 rubles. for $1 and above, which showed a devaluation percentage of 15%. The exchange rate of the ruble against world currencies has dropped significantly.

The exchange rate of the domestic currency has devalued greatly over the past 100 years. If it were not for its periodic denomination, in the current century Russian citizens would have used bills worth billions and trillions of rubles. The denomination took place in 1922, 1947, 1961 and 1998.

When the last denomination was carried out, 1000 old rubles were equal to 1 new one.

It was carried out in January 1998 after some stabilization of the economic situation, but the 1998 crisis again forced the ruble to fall; the positive forecast a year ago did not come true.

What does the course depend on?

The reasons for what is happening should be sought not in conspiracy theories, but in the laws of economics. Countries such as the USA, Japan, Germany, France, Great Britain have very strong economies. They are less dependent on the export of raw materials than Russia.

Who benefits from currency depreciation?

But there is also a national regulator in the person of the Central Bank of the Russian Federation. Why doesn’t it include all the tools and levers to maintain the exchange rate of the domestic currency? And again, we need to discard any conspiracy theories claiming that agents of influence from the State Department have settled in the Russian Central Bank.

There is a completely economic explanation for these phenomena, including the threat of devaluation or its absence.

If the prices of export goods rise, the consequences are that more foreign currency enters the country. For settlements with the state, with workers, with public utilities, we need domestic currency. Therefore, the exporter is forced to exchange foreign currency earnings (part of it) for the national currency. A lot of foreign currency enters the domestic market, demand for it falls, it devalues, the ruble strengthens and increases its value.

This happened when oil prices rose - this happened until mid-2008 and 2014. But in both cases, the pessimistic forecast came true; the cost of hydrocarbons fell significantly, forcing the ruble to devalue. In this situation, less currency began to flow into the country. What does this mean?

If less currency comes into the country, the exporter will pay less contributions to the budget in terms of it. Moreover, if the wage fund, rent of premises, and utility costs remain at the same level, he may incur losses.

As a result, the enterprise will become bankrupt, close, an additional number of unemployed will be formed, consumer demand within the country will fall, triggering a crisis of overproduction.

There will be goods in warehouses, but there will be no one to buy them. Such consequences trigger a new round of business shutdowns and layoffs, which will further aggravate the situation; a new devaluation of the ruble will begin, stimulating an even greater crisis.

It is the devaluation of the national currency that can save us from this. Since the exporter pays with the state, employees and utilities in rubles, devaluation allows him to receive the same money supply in terms of domestic currency, even with less revenue in dollars or euros.

Until mid-2014, the sale of 1 barrel of oil generated $115, which at an exchange rate of 31 rubles. For 1$ it was enough for both salary and taxes. In order for the price of 1 barrel of oil to be $50-70 and continue to be enough for salaries and taxes, the dollar exchange rate must be higher.

The effect of the ruble devaluation is such that everyone wins in this situation.

The state budget receives the expected revenues, state employees and pensioners receive salaries and pensions on time, export workers are not fired, they receive salaries, the enterprise does not close and continues to function.

As a result, the decline in purchasing power in the country is reflected only in imported goods, because they rise in price sharply when the ruble falls.

The devaluation of the ruble is also beneficial for domestic producers, whose goods become more competitive in relation to imported analogues.

Russia's own production is beginning to grow, which has a beneficial effect on the country's economy. And this stops the fall of the ruble and strengthens it.

This is the answer to the question of who benefits from the devaluation of the ruble. But there will also be victims, especially those who have a loan in foreign currency, including a mortgage on real estate.

Devaluation is a process in which the real value of a currency is artificially reduced. The national currency is under the control of financial institutions, which have chosen the devaluation process as the main method of management.

With a floating exchange rate, the value of the currency is not officially assigned. In this case, if the exchange rate falls, it is called currency depreciation.

Explanation in simple words

In financial terminology, the concept of “devaluation” is quite common. What it is? In simple words the term can be explained as follows. When the value of the ruble falls, but the currencies of other countries maintain their positions or rise, this is called devaluation. For example, just recently you could buy 1 kg of sugar for a certain amount, but today you can buy only 300 g for the same money. Money no longer has the same significance. For countries that use goods from foreign suppliers, this process is extremely unprofitable.

Devaluation in Russia

Devaluation in Russia has occurred more than once. In 1998, a default was declared. Then, in just a few months, the ruble exchange rate against foreign currencies decreased by 246%. Previously, the cost of one dollar was 6.5 rubles, and after the collapse - 22.5 rubles. The second wave of devaluation hit the ruble in 2008. At that time the exchange rate was 27 rubles per dollar. The devaluation of the ruble led to its rate falling rapidly and by the end of February it approached the maximum permissible limit of the currency corridor. At that time, the maximum exchange rate was fixed at 36.5 rubles per dollar.

In 2014, Russian citizens also felt the consequences of this unpleasant process. The ruble exchange rate has almost halved. Several reasons for devaluation should be highlighted. The holding of the Olympic Games in Sochi had a significant impact on the depreciation. To increase export revenues, the state needed to artificially depreciate the national currency. Military events in Ukraine and the annexation of Crimea also significantly undermined Russia’s financial stability. But the most important factor was the twofold decline in oil prices. At the same time, the Russian economy suffered significantly from US and EU sanctions.

Types of devaluation

The devaluation of the ruble can be official, hidden, controlled or uncontrolled. In an official devaluation, the central bank makes an open statement that the currency is devalued and will subsequently be withdrawn from circulation or exchanged for banknotes at the current rate.

Hidden devaluation does not lead to the withdrawal of money from circulation. With controlled devaluation, the government tries to maintain the value of the currency by all mechanisms and means, while all the prerequisites for depreciation are present.

Uncontrolled devaluation is a process that is not under the control of the central bank. The state can no longer apply mechanisms to maintain the course, and the situation is getting out of control. This is the most common type of devaluation.

Main reasons for devaluation

Devaluation is mainly a consequence of macroeconomic changes. Among the reasons worth noting:

An excess of imports over exports, which leads to an imbalance in the state's trade balance.
Decrease in the country's purchasing power.
Rising inflation rate.

In order to artificially reduce the exchange rate, the responsible authorities cease to maintain its value, comparing it with foreign exchange rates. As a result, the rate is no longer tied to the currency basket. As a result of rising inflation, the demand for products exported from the country may sharply fall. In this case, the management apparatus is forced to resort to devaluation.

Consequences of devaluation

Devaluation is a process that brings both positive and negative results. If the outcome is positive, export operations improve, demand for locally produced goods increases, the trade deficit decreases, and domestic production increases. The devaluation of the national currency also has a negative side. This leads to inflation in the country, national banknotes lose their credibility, imports are suppressed, capital leaves the country, the financial sector is destroyed. This has a particularly negative impact on enterprises that purchase raw materials and products from imported suppliers.

How to save savings during devaluation?

You should understand that devaluation is not a default. Therefore, you should understand what needs to be done in such situations to avoid loss of personal capital. If a loan was taken out shortly before the devaluation, this may turn out to be a profitable decision, especially if the loan funds were invested in goods. Thus, the capital will not only not be lost, but will also increase several times. For example, if you buy a car before devaluation, then later, when the exchange rate drops to a critical point, you can sell it, thereby saving significantly. Since now only a small part of the proceeds from the sale will be used to repay the loan. The rest of the amount will be the proceeds.

During devaluation, you should not buy foreign currency. For ordinary citizens who do not have connections to financial institutions, this may carry certain risks. As a rule, the actual purchase occurs at an inflated exchange rate. There is also another risk associated with a depreciation of the purchased currency. When the value of a currency drops sharply, it is almost impossible to exchange it, as banks suspend exchange and wait for the situation to clear up.

The most effective method of preserving capital is to invest it in goods. Since in the process of development of devaluation, the cost of goods will only increase. This is especially true for foreign-made goods.

It is categorically unacceptable to store money in national currency. This may lead to their complete or partial loss. This unpleasant phenomenon is devaluation. What it is is not at all easy to explain in simple words.

Analysts believe that further devaluation of the ruble is a likely scenario for Russia at the end of 2016. What kind of process is this and whether it will give the necessary impetus for economic development, we learned from experts.

Depreciation rate

Devaluation is a decrease in the value of the national currency in relation to other currencies. For example, the exchange rate of the national Brazilian currency - the real - has fallen more than 3 times against the US dollar over the past two years, the Russian ruble has depreciated 2 times against the dollar, and the Turkish lira has collapsed almost 3 times since the beginning of 2013.

Main Factors

Factors that provoke currency devaluation can be completely different. For example, political instability: in Turkey this factor became a key factor and provoked the devaluation of the lira. Or this is the policy of the monetary authorities. For example, the Bank of Japan often resorts to devaluing its own currency to stimulate exports and support economic growth and inflation.

The lesser evil or an incentive for growth

Not for all countries the devaluation of their own currency is a real incentive for growth or modernization.

Devaluation is disadvantageous for countries with import-oriented economies, since sharp fluctuations in exchange rates usually lead to a surge in inflation and instability in the macroeconomy. Moreover, it is not at all necessary that these countries are poor or undeveloped. For example, most classic oil-producing countries, such as Saudi Arabia, are almost completely dependent on imported goods, which is why they are forced to maintain a rigid exchange rate of the national currency to the US dollar. Another example is Great Britain, whose national currency (British pound) in 1992 experienced a collapse of almost 70% against the US dollar as a result of speculation by large funds - in particular, the fund of the famous American speculator George Soros.

“The state can influence devaluation using monetary policy instruments, conducting foreign exchange interventions, reducing interest rates, while pursuing a number of goals to stimulate economic growth in the country. Devaluation reduces the cost of producing goods within a country, measured in foreign currency. This makes it possible to increase the competitiveness of goods produced within the country in foreign markets: goods are sold at dumping prices on the export market, and demand for domestic goods is growing.

However, devaluation also carries with it a colossal danger. Countries with an undeveloped economic system and backward technologies are unlikely to be able to reap significant benefits from devaluation, because the goods of their producers will most likely not be able to compete with more high-tech goods in foreign markets. Such countries may rely on the export of raw materials and try to use the foreign exchange income from the sale of raw materials to develop their own technologies, gradually replacing increasingly expensive imported goods, but this process may turn out to be very lengthy and be accompanied by stagnation and even recession. Devaluation is also extremely dangerous for countries with high levels of external debt in foreign currency, both corporate and government,” explains Elizar Bubnov.

There are also countries in which devaluation has, in principle, no effect - these are mainly countries with developed economies that are little dependent on exchange rates, but whose economies are focused on domestic demand, investment or the service sector: Singapore, Panama, USA, Hong Kong and etc.

Key Benefits

Two effects that devaluation of the national currency can achieve are import substitution and export growth. First, new industries and production of goods and services that were previously occupied by imports are actively emerging in the country, and after the domestic industry has received sufficient capacity to further increase production volumes, export supplies are growing.

In Russia, there was an uncontrolled, but a shock devaluation - the ruble depreciated by more than 2 times in just 2 months and at that moment the depth of the collapse reached 170% (when oil fluctuated around 26-28 dollars per barrel). Because of this, there was an inflationary surge - in 2014-2015. total inflation reached almost 25%. However, the devaluation of the ruble was much deeper than the increase in internal costs of enterprises, and therefore the competitiveness of Russian goods increased.

“With the help of devaluation, the government hoped to solve the problem of the budget deficit with falling oil prices. If at the same time the dollar grows, and the country sells raw materials for dollars, then everyone seems to be fine, the budget remains the same, and there is an opportunity for import substitution. But this is only one side of the coin. And as you know, there is another one.

For example, Russian enterprises, in the context of a decline in production, are already poorly motivated and have the opportunity to purchase new equipment, and devaluation makes it even less accessible,” adds Anastasia Ignatenko, analyst at TeleTrade Group.

For devaluation to become a benefit and not a hindrance to development, it is important that this process occurs gradually and devaluation shocks that lead to an inflationary surge are not allowed. Secondly, the devaluation must be controlled by the financial authorities and must be accompanied by other measures to support economic and industrial growth in the countries.

Otherwise, it will turn out like in the famous phrase of former Russian Prime Minister Viktor Chernomyrdin: “We wanted the best, but it turned out as always.”

“What awaits us if the ruble continues to weaken? It’s simple: rising inflation and rising prices for goods and services; decrease in the importance of the Russian currency; reduction in trade volumes and injections into the economy; reduction in the number of jobs, as well as the closure of individual organizations and enterprises. Maybe I missed something, but the process clearly does not bode well for us. Therefore, if the economy can suddenly receive a positive effect from devaluation, it will be more of a surprise than a natural phenomenon. Until the state is ready to implement structural reforms and stops putting everything on the back burner, changes for the better are unlikely in themselves,” summarizes Anastasia Ignatenko

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Decrease - exchange rate - national currency

Page 1

A depreciation of the national currency leads to higher prices for imports and increases the size of external debt. An increase in the exchange rate leads to a decrease in the competitiveness of goods and reduces exports.

The importer benefits from the depreciation of the national currency.

Devaluation is government measures to reduce the exchange rate of the national currency relative to the rates of other currencies under a system of fixed exchange rates. The authorities resort to devaluation when it is necessary to eliminate the balance of payments deficit - to make imports more expensive and exports cheaper.

Currency interventions by central banks are aimed at counteracting the depreciation of the national currency or, conversely, its increase. However, it should be noted that foreign exchange interventions can be an effective method of influencing exchange rates in the short term, since interventions alone cannot ensure exchange rate levels that do not correspond to basic economic and financial indicators. The most effective are currency interventions accompanied by corresponding measures in the field of general economic policy of the state.

Foreign exchange interventions by central banks are aimed at counteracting the depreciation of the national currency or, conversely, its increase. However, it should be noted that foreign exchange interventions can be an effective method of influencing exchange rates in the short term, since it is not only through interventions that it is impossible to ensure exchange rates that correspond to basic economic and financial indicators. The most effective are currency interventions accompanied by corresponding measures in the field of general economic policy of the state.

A relatively widespread characteristic is that connects devaluation with a depreciation of the national currency, with the need to accumulate sufficient gold and foreign exchange reserves that can ensure the stability of its exchange rate.

Dirty float is a system of managed floating exchange rates when states intervene from time to time in foreign exchange markets to avoid an increase or decrease in the exchange rate of the national currency.

At the same time, a depreciation of the currency leads to an increase in import prices in the country, stimulates inflation and subsequently increases production costs. The depreciation of the national currency has different effects on the general price level.

The exchange rate relationship between currencies is also affected by the acceleration or delay of international payments. In anticipation of a depreciation of the national currency, importers seek to speed up payments to counterparties in foreign currency so as not to incur losses when its exchange rate increases. When the national currency strengthens, on the contrary, their desire to delay payments in foreign currency prevails. This tactic, called leads and legs, affects the balance of payments and the exchange rate.

An active balance of payments contributes to the appreciation of the national currency, as the demand for it from foreign debtors increases. The passive balance of payments creates a tendency for the national currency to depreciate, as debtors sell it for foreign currency to pay off their external obligations. The instability of the balance of payments leads to abrupt changes in the demand for the corresponding currencies and their supply. In modern conditions, the influence of international capital movements on the balance of payments and, consequently, on the exchange rate has increased.

Indirect methods are the monetary policy of the state within the country in an open market. Ultimately, the state carries out measures aimed either at reducing the exchange rate of the national currency or at increasing it. The choice of a specific course depends on the specific economic situation in the country.

Monetary reforms mainly come down to the following processes: 1) complete or partial replacement of banknotes with the issuance of a new type of money while maintaining their nominal value; 2) denomination - enlargement of the monetary unit. A type of monetary reform is also a change in the exchange rate of the national currency: devaluation - a decrease in the exchange rate of the national currency in relation to hard currencies with a decrease in the real gold content of the monetary unit, or revaluation - an increase in the exchange rate of the national currency with an increase in the real gold content of the monetary unit.

BALANCE OF PAYMENTS DEFICIT - A macroeconomic indicator that reflects a situation in which the total net receipts of foreign currency into the country's current account and capital account are negative. This can happen, in particular, when imports into the country exceed exports from the country, as well as due to negative dynamics of the exchange rate, or a depreciation of the national currency.

Similarly with currency speculation, there is the acceleration or delay of payments in a certain currency (lids and leggs) in order to obtain benefits. Manipulation of the timing of international payments is carried out in anticipation of a sharp change in the exchange rate, interest rates, taxation, the introduction or strengthening of currency restrictions, and a deterioration in the debtor’s solvency.

Devaluation of the national currency

Fearing a depreciation of the national currency, importers seek to speed up payments or buy foreign currency for a period of time, since they lose when the latter’s rate increases. Exporters, on the other hand, delay receipt or transfer of foreign exchange proceeds and do not make sales for the duration of future foreign exchange earnings.

When the national currency depreciates, unless other factors counteract it, exporters receive an export premium when exchanging the proceeds from an increasingly expensive foreign currency for a cheaper national currency and have the opportunity to sell goods at prices below the world average, which leads to their enrichment at the expense of the material losses of their country. Exporters increase their profits by exporting goods en masse. But at the same time, the depreciation of the national currency makes imports more expensive, which stimulates an increase in prices in the country, a reduction in the import of goods and consumption, or the development of national production of goods to replace imported ones. A depreciation in the exchange rate reduces real debt in national currency and increases the severity of external debts denominated in foreign currency. It becomes unprofitable to export profits, interest, and dividends received by foreign investors in the currency of the host countries. These profits are reinvested or used to purchase goods at domestic prices and then export them.

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Devaluation- this is the official depreciation of the national currency in relation to hard currencies in systems with a fixed exchange rate set by the monetary authorities.

Also, devaluation is a decrease in the gold content of a monetary unit under the gold standard.

Devaluation is a decline in the real exchange rate dictated by economic policy (the term is used in the research works of the International Monetary Fund).

Devaluation is considered as a tool of central banks to manage the national currency, the opposite of revaluation.

In a floating exchange rate environment, there is no direct official assignment of the value of the national currency. Therefore, for the situation of currency depreciation, the term is used depreciation(depreciation), and for a situation where the exchange rate is rising, the term rise in price(appreciation). The Central Bank can only change the exchange rate through indirect methods (currency interventions). Under these conditions, depreciation or appreciation will not be the result of the adoption of an official document, but the result of changes in the value of the currency under the influence of market mechanisms.

Until November 2014, the ruble exchange rate in Russia was pegged to a “basket of currencies”, where 55% of US dollars and 45% of euros were within the currency corridor established by the Central Bank of the Russian Federation. Later, the Central Bank of the Russian Federation let the ruble float freely and the ruble depreciated.

Devaluation and inflation

The term “inflation” is close in meaning to the term “devaluation”, but the former is more often referred to the purchasing power of the national currency in the local commodity market, and the latter - the purchasing power in relation to foreign currencies. In essence, both are characterized by a change in purchasing power. Often, devaluation of a country's currency can be one of the causes of inflation within that country. However, foreign currencies are also subject to inflation, so inflation is possible without devaluation. If foreign currencies are subject to deflation, then devaluation without inflation is possible.

Open (official) and hidden devaluation

In case of open devaluation, the Central Bank of the country officially announces the devaluation of the national currency, depreciated paper money is withdrawn from circulation or such money is exchanged for new money, but at a lower rate.

a) Historical example of open devaluation The monetary reform of 1839-1843 in Russia may serve as an example, which resulted in the fact that depreciated banknotes were exchanged at the rate of 3 rubles 50 kopecks for 1 silver ruble for credit notes, which, in turn, were subject to exchange for gold and silver at face value. Thus, temporary stabilization of the ruble was achieved by the method of open devaluation: for 1 ruble in banknotes, their holders received only about 29 kopecks in silver.

Hidden devaluation

a) Historical example of hidden devaluation The monetary reform of 1897 in Russia may serve as an example. It was expressed in the fact that the exchange of credit notes for gold coins was introduced, nominally ruble for ruble, but at the same time the gold content of the ruble was reduced by one third - from 26.1 to 17.4 shares of pure gold.

b) Another example of hidden devaluation is monetary reform in the USSR in 1961. During the reform, old banknotes were exchanged for new ones in a ratio of 10:1. However, the gold content of the ruble was increased by only 4.44444 times from the pre-reform 0.222168 g of pure gold per ruble to 0.987412 g. The dollar exchange rate was changed in the same ratio. Before the reform, it was 4 rubles per 1 dollar, and after the reform it became equal to 90 kopecks per 1 dollar. Thus, during the reform process, the Soviet ruble was devalued by 2.25 times.

V) August 17, 1998 In connection with the economic crisis, a decision was announced to devalue the ruble, the introduction of a unilateral moratorium on bank payments with the West, the proper repayment of government bonds (GKOs, OFZs) and the freezing of private bank accounts.

d) After 10 years, the Russian ruble was devalued again in order to improve the balance of payments and trade and stimulate capital inflows. Over 6 months (from the beginning of August 2008 to the beginning of February 2009), the ruble fell in price against the bi-currency basket by approximately 28% (from 29.3 to 40.9 rubles per unit of account consisting of 55% of USD and 45% of EUR).

Open devaluation causes a decrease in commodity prices; hidden devaluation does not in itself lead to a change in prices.

Reasons for devaluation

The reasons for the devaluation of the national currency may be inflation or a balance of payments deficit.

Devaluation is caused by macroeconomic factors, but the direct depreciation of the currency comes from the decision of the regulatory authorities in the country. This solution could be:

official reduction of the exchange rate fixed by the country's leadership,
refusal to support the exchange rate,
refusal to link the exchange rate to the currencies of other countries or currency baskets in order to reduce the country's balance of payments deficit, increase the competitiveness of manufactured goods on the world market, and stimulate domestic production.

Consequences of devaluation

The consequence of devaluation is the stimulation of exports, since the exporter, when exchanging the proceeds of foreign currency for his devalued devalued currency, receives devaluation income.
Decrease in the rate of consumption of the country's gold and foreign exchange reserves.
Increasing the competitiveness of the national economy. However, only if devaluation is carried out in conjunction with restrictive monetary and income policies, as well as structural reforms.

Negative consequences of devaluation

The obvious disadvantage of a hard devaluation is the loss of confidence in the depreciating currency.

Devaluation increases the prices of imported goods and makes them less competitive compared to local (domestic) goods and therefore limits imports, that is, it occurs import substitution. The population suffers from this, as do enterprises that buy foreign raw materials, parts, equipment, and technologies.

Deposits in the national currency that have undergone devaluation are depreciated. There is a rush to withdraw funds from bank deposits in the devalued currency. At the same time, banks can increase the interest rate on deposits to reduce the outflow of deposits.

Devaluation provokes an increase in inflation rates, since when domestic products become cheaper, producers increase prices on the domestic market (unwinding the devaluation-inflation spiral), further depreciating deposits and savings.

Devaluation creates currency risks for business, which is especially harmful during a crisis.

The main disadvantage of the so-called implementation carried out by the Russian financial authorities. The “smooth” devaluation was the formation of a foreign currency financial “bubble”, which led to an outflow of ruble liquidity, a cessation of lending to the real sector, an increase in the cost of ruble resources, and many months of suspended animation of economic activity.

The real purchasing power of the population's cash income in the devalued currency (salaries, pensions and cash benefits) is falling, and buyer activity is decreasing.

Books

Large economic dictionary. – Ed.
What does devaluation mean in simple terms, who benefits from the devaluation of the ruble in Russia

A.N. Azriliyana. – 6th edition, – M.: Institute of New Economics, 2004. – 1376 p. – page 185.

Introduction 3

I. Theoretical aspects of devaluation and revaluation 4

1.1. The essence of devaluation 4

1.2. Types of devaluation 5

1.3. Consequences of devaluation 7

1.4. The essence of revaluation 8

II. Currency regulation and its impact on macroeconomic processes………………………………………………………………………………….11

III. Tendencies of devaluation and revaluation of the ruble in the context of the economic crisis…………………………………………………………………………………………19

Conclusion………………………………………………………………………………….31

List of sources used………………………………………………………34

Introduction

Devaluation is a complex phenomenon in the currency field. Countries are taking all possible measures to avoid it: they stimulate the export of goods, limit imports, raise the discount rate of the central bank, receive loans from the IMF within their quota, use their existing gold and foreign exchange reserves, since devaluation indicates the weakness of the currency of a given country . The devaluation of the country's currency is carried out in conditions of a chronically passive balance of payments, increased inflation, a relative (compared to other countries) decrease in the growth rate of GNP and the low effectiveness of tough measures taken by the government. There is a panic flight from the national currency, the movement of “hot money” (speculative short-term capital moving from countries with a lower exchange rate).

Revaluation is the reverse process of devaluation. Country implementing the revaluation

To determine which path the country’s economy should take, especially during a crisis period, it is necessary to first study these two concepts.

Theoretical aspects of devaluation and revaluation

The essence of devaluation

There are several definitions that express the essence of devaluation.

Devaluation is the official decrease in the exchange rate of the national currency in relation to foreign currencies.

Devaluation is “the deliberate reduction in the value of a currency by authorities relative to gold or other currencies, for example, to stimulate aggregate demand in an economic system, usually with official notification”1. Otherwise we can say that devaluation — it is a decline in the value of a currency that is preceded by an official announcement.

In addition, devaluation is a monetary reform, which consists of lowering the official exchange rate of paper money to its real value, resulting in a depreciation of the national currency, that is, a decrease in its exchange rate relative to foreign currencies and gold. That is, devaluation is an official decrease in the exchange rate of the national currency.

Before the abolition of gold parities, devaluation occurred simultaneously with a decrease in the gold content of the currency.

The reasons for the devaluation are the uneven development of inflation in individual countries and the deficit of balances of payments. Although devaluation is caused by macroeconomic factors, the direct depreciation of the currency is caused by the decision of the regulatory authorities in the country.

Such a solution may be an official reduction in the exchange rate fixed by the country’s leadership, refusal to support the exchange rate, refusal to link the exchange rate to the currencies of other countries or currency baskets in order to reduce the country’s balance of payments deficit, increase the competitiveness of manufactured goods on the world market, and stimulate domestic production.

And, in turn, to eliminate these reasons, devaluation is used as a method of stabilizing the national currency, the opposite of revaluation, the essence of which is to lower the official exchange rate of paper money to their real value, i.e., reducing the exchange rate of the national currency in relation to hard currencies, international units of account; decrease in the real gold content of the monetary unit.

Governments carry out devaluations when they perceive that their currency is overvalued, for example, if it becomes clear that “high inflation has made the country's exports uncompetitive or the trade balance is very unfavorable for the country.”2 The purpose of devaluation is to make exported goods cheaper and imported goods more expensive, although the downside is undoubtedly the loss of confidence in a country forced to devalue its currency.

Devaluation is a measure that only states with a fixed exchange rate for their currency are forced to take. If a country's currency is "floating", devaluations or revaluations occur constantly and automatically.

Types of devaluation

There are official open and hidden devaluations.

In case of open devaluation, the Central Bank of the country “officially announces the devaluation of the national currency, depreciated paper money is withdrawn from circulation or such money is exchanged for new, stable credit money”3 (but at a rate corresponding to the depreciation of old money, i.e. lower).

With hidden devaluation, the state reduces the real value of a monetary unit in relation to foreign currencies without removing the depreciated money from circulation.

Open devaluation causes a decrease in commodity prices, while hidden devaluation does not in itself lead to a change in prices.

The devaluation of the ruble in Russia is carried out by the Central Bank. The ruble exchange rate is pegged to a basket of currencies, where 55% are dollars and 45% are euros. The Central Bank has set a floating exchange rate for the ruble, but within the currency corridor. In order to devalue the ruble, it is necessary to expand the currency corridor, that is, set the minimum and maximum value of the ruble in relation to a basket of currencies, then the ruble exchange rate is determined at foreign exchange auctions.

The term “inflation” is close in meaning to the term “devaluation”, however, the first is more often referred to the cost of money in the national region, and the second - to international markets. In fact, both are characterized by rising prices. Often, currency devaluation can be one of the causes of inflation within a country. Another difference from inflation is that devaluation is a deliberate measure taken by the Central Bank, and inflation, as a rule, is a spontaneous phenomenon that is difficult to control by the state.

The risk of currency devaluation refers to the risk of a sharp stress depreciation of a currency relative to other currencies. The ability to assess the risk of devaluation depends significantly on the form in which it occurs. The reduction of the fixed exchange rate by the country's leadership can be predicted in advance; spontaneous devaluation caused by the failure of regulators to support the exchange rate is difficult to estimate. In anticipation of a sharp drop in the exchange rate, investors are beginning to invest money in more tangible media. But, nevertheless, this is a last resort.

An example of devaluation is the sharp fall of the pound in 1992, from which Soros was able to make significant money. It caused a sharp oversold situation, selling more than $10 billion worth of pounds in one day, which became critical. The fact is that even before this, the pound was artificially maintained higher than it could support itself. After such a serious sale, a lot of cheap pounds appeared on the market, the government decided that it did not make sense to continue to hold the currency. The fall of the pound was then about 12%. Another example is the Italian lira, which dates back to approximately the same time. The devaluation then amounted to about 7%. It is interesting that both countries were members of the European Monetary System and the deviation of their exchange rates from parity was higher than the established norms.

A historical example of open devaluation is the monetary reform of 1839-1843. in Russia, which resulted in the fact that devalued banknotes were exchanged at the rate of 3 rubles. 50 kopecks for 1 silver ruble for credit notes, which in turn could be exchanged for gold and silver at face value. Thus, temporary stabilization of the ruble was achieved through open devaluation: for 1 ruble in banknotes, their holders received only about 29 kopecks. silver A historical example of hidden devaluation is the monetary reform of 1897 in Russia. It was expressed in the fact that the exchange of credit notes for gold coins was introduced, nominally ruble for ruble, but at the same time the gold content of the ruble was reduced by 1/3 - from 26.1 to 17.4 shares of pure gold. August 17, 1998 Due to the economic crisis, a decision was announced to devalue the ruble, the introduction of a unilateral moratorium on bank settlements with the West, the payment of dividends on state bonds and the freezing of private bank accounts.

Consequences of devaluation

The positive aspects of devaluation are:

The consequence of devaluation is the stimulation of exports, since the exporter, when exchanging the proceeds of foreign currency for his depreciated currency, receives devaluation income.

Increasing demand for domestic goods within the country.

Reduction in the rate of consumption of the country's gold and foreign exchange reserves.

Negative aspects of devaluation.

The obvious disadvantage of a hard devaluation is the loss of confidence in the depreciating currency.

Devaluation increases prices for imported goods and makes them less competitive compared to local (domestic) goods and therefore limits imports, i.e. import substitution occurs. The population suffers from this, as do enterprises that buy foreign raw materials, parts, equipment, and technologies. Deposits in the national currency that have undergone devaluation are depreciated. There is a rush to withdraw funds from bank deposits in the devalued currency.

Devaluation provokes an increase in inflation rates, since when domestic products become cheaper, producers increase prices on the domestic market (unwinding of the devaluation-inflationary spiral), further depreciating deposits and savings. The real purchasing power of the population's cash income in the devalued currency (salaries, pensions and cash benefits) is falling, and purchasing activity is decreasing.

The essence of revaluation

Revaluation– “an official increase in the gold content of the country’s monetary unit or an actual increase in its exchange rate”4 . One of the means of state-monopoly regulation of the economy of capitalist countries. By mechanism of impact on the economy revaluation the opposite of devaluation. Until the end of the 60s. 20th century revaluation was a relatively rare occurrence in international monetary practice. This is explained by the fact that the country implementing the revaluation its currency, puts itself in a less advantageous position in the field of foreign trade, the influx of foreign capital and international tourism compared to other countries.

Revaluation, increasing the exchange rate of a given country in relation to the currencies of other countries, causes an increase in the prices of exported goods in foreign currency and thereby reduces the country's competitiveness in the world market and restrains the export of its goods. By lowering the prices of imported goods expressed in national currency, p revaluation leads to an increase in demand for them and an increase in imports, the emerging exchange rate relationships between the revalued currency of a given country and the currencies of other countries make it unprofitable for foreign owners to invest capital in this country, because when exchanging currencies, they will receive a smaller amount in local currency. And, conversely, for a country that has revalued its currency, the export of capital becomes more profitable, because the opportunity arises to purchase foreign currency cheaper. In the field of international tourism revaluation leads to a reduction in income from the influx of foreign tourists, because trips to a given country are more expensive for them, and, on the contrary, it stimulates trips abroad by domestic tourists, for whom foreign currency becomes cheaper.

Governments of different countries use p revaluation to fight inflation. Exactly how the anti-inflationary measure was carried out revaluation their currencies of Germany in 1969 and 1971, the Netherlands, Switzerland, Austria and a number of other countries in 1971 and 1973. By limiting the influx into the country of foreign and mainly speculative ones wandering in search of more profitable investment of capital, revaluation allows, to a certain extent, to restrain the increase in the money supply in circulation and, on this basis, slow down the growth of domestic prices. Reduction as a result revaluation import costs also limit the rise in domestic prices.

Revaluation is also carried out with the aim of curbing the growth of the trade surplus. Such revaluation sometimes carried out under pressure from other countries or international monetary and financial organizations. Thus, in December 1971, the Japanese government, under pressure from the United States, revalued the yen in order to equalize the trade balance between the two countries. In the early 70s. with the use in a number of capitalist countries of “floating”, fluctuating (deviating from the established parity under the influence of supply and demand) exchange rates, some capitalist countries resorted to actual exchange rate revaluation their currencies in the form of an increase in their market rate, without officially changing their gold content. Thus, the introduction in February 1973 of a “floating” exchange rate of the Japanese yen meant an actual p revaluation yen against the US dollar by 16.25%.

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Andrey Lipov

Lately, I have begun to remember more and more often the economic crisis of 1989-1991, the subsequent decline in production and the ruble crisis, and the crisis of 2008-2010, of course. Let's look together again at those events in our country and the neighboring countries.

Consequences of ruble devaluation - forecasts and expert opinions for the coming year

Maybe we will notice some prerequisites that will be obvious in the current economic situation.

Economic crisis of the ruble in 1998

On August 17, Russia's technical default became a bright spot in global financial history. This means the depreciation of all securities within the country due to the constant increase in domestic debt. The reasons for this crisis were the following circumstances of the global economy: an emergency decline in prices for crude oil, the sale of which is still the central source of income for the Russian economy; the collapse of the Asian partnership and increased spending of internal budget funds on GKOs - a state commercial association, a body for loans and bond lending. Ultimately, everything led to a sharp collapse of the stock market, a rocket-like rise in the dollar and the cruelest situation of ordinary people.

Those were very difficult days of queues and angry cashiers. There were lines everywhere: in markets, in shops with empty counters, etc. And that’s why the evil cashiers were evil, because the people who came for their wages and did not receive it brought down all their anger on them.

The most important way to overcome this was that the government of the Russian Federation and Boris Yeltsin chose the path of obtaining a large number of loans from the IMF, but in essence this only led to a redistribution of the shares of the internal and external debt of the Russian Federation. The crisis was overcome with the recovery of oil prices following the collapse of the Saudi stock exchange and the outbreak of the Iraq War in 2000.

Crisis of the national currency in Belarus, 2011

At the beginning of 2011, gold and foreign exchange reserves in the Republic of Belarus decreased to a record level, external debt increased by a quarter compared to last year, and monthly inflation began to amount to several percent. As a result, the panicked population rushed (as usual) to buy dollars. At the same time, the collection from foreign currency buyers has increased by 210 times - up to 2%

In April 2011, currency was in constant shortage, and huge queues for food lined up. In May and June, the Belarusian ruble depreciated by 8-13% per month. Prices for gasoline increased by 20%, for food and some consumer goods such as cigarettes - even more.

The situation was somehow extinguished by attracting a large number of loans, but the halving of the standard of living cannot be restored so easily. Suffice it to say that the value of the dollar eventually changed as follows: from 3,000 to 8,500 Belarusian rubles.

Tenge devaluation in Kazakhstan, 2014

On February 11, 2014, the National Bank of the Republic of Kazakhstan decided to abandon support for the national currency in the previous volume, reduce foreign exchange interventions and actually withdraw from the process of regulating the tenge exchange rate. As a result of the storm that broke out in the foreign exchange market, the tenge exchange rate dropped by about 13% in one day.

Panic began, the population rushed to buy dollars, the banks did not take advantage of the situation and rolled out exchange rates at all costs. Shops selling imports, particularly electronics stores, hastily closed. Unauthorized rallies against devaluation began to gather on the streets.

Meanwhile, the economic crisis in Kazakhstan is not over. Its tightening is considered inevitable according to most economic analysts. The prerequisites are, first of all, a growing external debt to the Russian Federation and an emptying treasury. In addition, the catalyst could be a crisis in Europe due to the reverse effect of US and European sanctions against Russian policy on the issue of Ukraine. The first industry to suffer from the crisis should be the small and medium-sized business industry, and as a result, the deterioration of the service sector and light industry.

It is worth thinking about the fact that in Russia the Central Bank is also pursuing a policy of abandoning the currency corridor and, starting in the new year, is threatening to send the ruble into free float.

Crises are, alas, an inevitable phenomenon in the financial history of any country. As can be seen from this brief overview, indicators may include a fall in gold and foreign exchange reserves, a large amount of internal and external debt, monetary policy, and ill-considered actions of the country's authorities. Unfortunately, you never know when the next crisis will occur. One thing is for sure - it will definitely start. And it's best to be prepared for this. How to do it? Read on our website.

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Hello, friends!

We continue to improve our financial literacy in order to understand what economists periodically scare on TV screens and whether we should be afraid. Next up is the answer to the question of what devaluation is.

This is another phenomenon that the world's economies face even more often than . Let me remind you that default is a refusal to pay bills. Let’s understand the definition of devaluation and try to do it in simple language.

Previously, the popular currency of the world was gold, backed by goods and services produced in the country. Then money came to replace it, the gold content of which became less and less. Thus began the first devaluation. The gold standard is long gone and the meaning of the word has changed.

Devaluation involves a decrease in the value of the national currency compared to the currencies of other countries. First of all, with those that are used in global trade: US dollars, euros and some others.

In Russia, this means a weakening of the ruble, a loss of its value. You don't have to look far for examples. We can observe this process throughout almost the entire modern history of Russia. And in 2018 it continues. We'll talk about the causes and consequences in the article.

The graph shows spikes in 2015 and 2016. After relative stabilization in 2017, in the spring of 2018, another fall in the exchange rate of our currency began.

Two processes are often confused: devaluation and inflation. But there is a significant difference between them. In both cases, this is a depreciation of money. But with devaluation, the national currency loses value in relation to other currencies. And when the value of money decreases in relation to goods and services within the country. They often accompany or result from each other.

How not to remember 1998. There is inflation, devaluation, and default. Three terrible words for Russians in one bottle. The consequences have not yet been overcome. One of them is the population’s distrust of the government’s economic policy. As a result, it is difficult to introduce new tools for accumulating, investing or saving money into people’s minds.

Some economists distinguish between 2 types of devaluation, some 4. I am inclined towards the latter option:

Market or natural - occurs under the influence of external and internal factors that have developed regardless of the actions of the government.

For example, international sanctions imposed by a number of countries against Russia have led to difficulties in the banking and manufacturing sectors. The decline in oil prices affects the condition of our exporting enterprises, and therefore the economy as a whole.

Artificial - which is controlled by the Central Bank for the purpose of regulation. It is no secret that the low exchange rate of the ruble is beneficial to the budget and exporting enterprises. We'll look at this in more detail a little later.
Open – when the government officially declares that the ruble exchange rate is falling.
Hidden – when no one admits that the process is out of control or that the tools of influence are not working well. And sometimes this is also due to the fact that the national currency is artificially devalued. I already mentioned this in paragraph 2.

Who wins

One important observation emerges from these types. Devaluation is not only the process of devaluing money, but also a tool for regulating the economy.

Who can benefit from this tool:

Exporters who sell their products for foreign currency. A cheap ruble means that enterprises receive a large amount of revenue in ruble equivalent. This means that the opportunities for investing in development, increasing wages, etc. are increasing.
The country's budget. Within the state, all payments are made in rubles. Accordingly, an increase in export revenue leads to a significant replenishment of the budget in the form of taxes. And this is the fulfillment of social obligations, the promised increase in salaries of public sector employees and much more.
Owners of deposits in foreign currency. There is no need for explanations here. The dollar and euro are growing and so is your income. Just don’t try to buy a currency at the peak of growth. And no one will tell you where this peak is. This is the dilemma.
Enterprises that produce goods from domestic raw materials. The cost of imported products increases sharply. The purchasing power of the population is falling. People are switching to domestic goods.

Causes and consequences

We got to the reasons for the devaluation. There are many of them and they are different. Let's highlight the main ones:

The government's refusal to support the course and letting it float freely. In this case, market regulation mechanisms begin to work. True, not always in the direction that everyone expects.
The desire to replenish the budget. As a result, the national currency is devalued in order to increase export revenues and tax contributions of exporting companies.
External economic and political factors. For example, wars, sanctions, global crises, general decline in the global economy, etc.
High inflation. The depreciation of money within a country can also lead to a loss of its value in relation to the currencies of other countries. Very often these processes go side by side.

Another reason could be careless words or actions of some authoritative source. Elementary panic begins among the population and enterprises, not supported by anything.
This option is the worst, in my opinion. It is difficult to control and curb. The purchase of currency begins on a huge scale, which leads to the depreciation of the local currency. Such cases are often called “black” days of the week.

The consequences of devaluation are not always negative. This phenomenon has its pros and cons.

stimulating demand for domestically produced products and, accordingly, the development of this very production;
export promotion;
replenishing the budget from tax revenues from exporting enterprises;
reducing the expenditure of the country's gold and foreign exchange reserves to artificially maintain the exchange rate of the national currency;
stimulating the population to improve and search for reliable tools.

On my own behalf, I will add once again that devaluation, default, inflation are phenomena that can become an excellent incentive for self-development, increasing one’s professional level of skill and education. All this will allow you to find a more profitable job or simply additional sources of income.

loss of confidence in the national currency and massive purchase of foreign currency in order to protect savings from depreciation;
outflow of capital abroad, foreign and domestic investors prefer to invest in stable economies, and citizens simply want to keep what they have earned;
problems with the production of products for which components are purchased for foreign currency;
rising prices for imported goods and a decrease in purchasing activity of the population;
rising inflation;
loss of confidence in the economic policy of the state and the associated closure of bank deposits, refusal to purchase government securities, etc.

For the population, devaluation of the ruble is almost always bad. It means that prices for imported goods are rising, citizens are beginning to abandon their usual purchases. Yes, they are switching to domestic products. But manufacturers can raise the price for it too, because they feel that there are no foreign competitors.

The poor are getting poorer. They have no savings in bank deposits or currency under their pillows. The rich are becoming just a little less rich.

Confidence in the national currency is falling, so the extra penny will be invested in the dollar or euro, thereby supporting the economies of the countries that issue this currency.

All these factors can turn into a vicious circle if the government and the Central Bank choose the wrong policies and the wrong tools to resolve the situation.

Conclusion

Devaluation is a phenomenon with which the economies of many countries live. Some, like Japan, specifically keep their currency low because the country exports its products around the world. There are positive and negative aspects to the depreciation of money. The main thing is to find a balance between them and not plunge the economy into chaos and the population into poverty.

Every year, survey articles appear on the Internet on the topic: “Do you think there will be a devaluation in 20...?” I won't ask you this question. We do not know the plans of the Central Bank, the government, the situation in the international arena and many other factors to make assumptions. Better work on yourself and on improving your financial literacy.

In systems with a fixed exchange rate set by .

Also, devaluation is a decrease in the gold content of a monetary unit in terms of .

Devaluation is a reduction in real value dictated by economic policy (the term is used in research works).

Devaluation is considered as a tool for managing the national currency, the opposite revaluation.

In conditions floating exchange rate There is no direct official assignment of the value of the national currency. Therefore, for a situation of decline, the term is used depreciation(depreciation), and for a situation where the exchange rate is rising, the term rise in price(appreciation). The Central Bank can only indirectly ( foreign exchange interventions) change course. Under these conditions, depreciation or appreciation will not be the result of the adoption of an official document, but the result of changes in the value of the currency under the influence of market mechanisms.

The ruble exchange rate in Russia until November 2014 was pegged to “ basket of currencies", where 55% and 45% are within the limits established by the Central Bank of the Russian Federation. Later, the ruble was allowed to float freely and the ruble depreciated.

Devaluation and inflation

d) After 10 years, the Russian ruble was devalued again in order to improve payment and trade balance and incentives capital inflow. Over 6 months (from the beginning of August 2008 to the beginning of February 2009), the ruble fell in price against bi-currency basket by approximately 28% (from 29.3 to 40.9 rubles per unit of account consisting of 55% USD and 45% EUR).

Open devaluation causes a decrease in commodity prices; hidden devaluation does not in itself lead to a change in prices.

Reasons for devaluation

The reasons for the devaluation of the national currency may be inflation or balance of payments deficit.

Devaluation is caused by macroeconomic factors, but the direct depreciation of the currency comes from the decision of the regulatory authorities in the country. This solution could be:

official reduction of the exchange rate fixed by the country's leadership,
refusal to support the exchange rate,
refusal to peg the exchange rate to the currencies of other countries or currency baskets in order to reduce the deficit balance of payments countries, increasing the competitiveness of manufactured goods on the world market, stimulating domestic production.

Consequences of devaluation

The consequence of devaluation is the stimulation of exports, since the exporter, when exchanging the proceeds of foreign currency for his devalued devalued currency, receives devaluation income.
Increasing demand for domestic goods within the country.
Reducing the country's spending rate.
Increasing the competitiveness of the national economy. However, only if devaluation is carried out in conjunction with restrictive monetary and income policies, as well as structural reforms.

Negative consequences of devaluation

The obvious disadvantage of a hard devaluation is the loss of confidence in the depreciating currency.

Devaluation increases the prices of imported goods and makes them less competitive compared to local (domestic) goods and therefore limits imports, that is, it happens import substitution. The population suffers from this, as do enterprises that buy foreign raw materials, parts, equipment, and technologies.

Deposits in the national currency that have undergone devaluation are depreciated. There is a rush to withdraw from bank deposits in the devalued currency. At the same time, they may increase the interest rate on deposits to reduce outflow.

Devaluation provokes an increase in rates, since when domestic products become cheaper, manufacturers increase prices on the domestic market (unwinding of the devaluation-inflationary spiral), further depreciating deposits and savings.

Devaluation creates for business, which is especially harmful in times of crisis.

The main disadvantage of the so-called implementation carried out by the Russian financial authorities. “smooth” devaluation became the formation currency financial bubble, which led to an outflow of ruble money, a cessation of lending to the real sector, an increase in the cost of ruble resources, and many months of suspended animation of economic activity.

The real income of the population in the devalued currency (salaries, pensions and cash benefits) is falling, and buyer activity is decreasing.