Monetary Devaluation Essay

748 words - 3 pages

MONETARY DEVALUATION Like every other product the coin of a country has a price, which is the exchange type; this represents the quantity of Mexican pesos that are needed to buy an American dollar, and like every other price this one is determined because: a) Because of the offer and demand of dollars, or b) Because of the monetary authorities of the country.The origin of the exchange types comes from the necessity that residents of one country have to buy another country's money in order to cover their international debts. In Mexico's case, residents demand dollars to buy goods and services from the exterior (imports); the offer of dollars comes from the selling of goods and services to the exterior (exports) as well as the income of capital such as foreign savings or direct investment. When imports and exports are not balanced the offer and demand of dollars is altered, which can also be affected in a short time for speculative reasons or simply as a precaution.MEXICO'S CASE: The changes in the economical situation of our country or in the ones with whom we realize mostly the exchange of goods and services, affect the behavior of demand and offer of dollars and as a consequence its price. If in Mexico the exchange type maintains fixed and the tendency of high prices is bigger than that one of the countries with whom we handle business normally, we will have a relative expensiveness of our goods and services with respect to the foreign ones. At the same time, foreign products will be cheaper to us. This situation provokes an increment in imports, carrying the demand of dollars, while the offer reduces as exports weaken. To stop this unbalance between offer and demand and not devaluating the coin, the government goes to external credit, establishes control over imports, subsides exports, etc… A situation of this type cannot maintain undefined. A way to correct this unbalance is to devaluate the coin (modification of the exchange type in the one the price of dollars in terms of our coin is increased).MONETARY DEVALUATION EXPERIENCE IN DEVALUATIONS: While the devaluation in 1938 was associated with the...

Find Another Essay On Monetary Devaluation

Financial English: Banks Essay

789 words - 3 pages * Functions of a central bank:- To implement monetary policy- To influence exchange rates by intervening in foreign exchange markets- To supervise the banking system- To act as a lender of last resort for commercial banks- Ways of implementing monetary policy:* Setting minimum and maximum interest rates to control the credit system* Controlling the amount of banknotes in circulation (issuing and withdrawing banknotes and coins)* Open market

International Monetary Systems Essay

1256 words - 5 pages The international monetary philosophy involves exchange rate consonance; capital flows and an assemblage of fixtures, ordinances, and covenant that dominate its use (Carney 2009). Internal fiscal policy structure coincides and is constitutive to the international system (Carney 2009). A well-functioning method boosts financial growth and success over the effectual allotment of assets, raise specialization in outputs set up on comparative

European Union, Theories and Analysis

1233 words - 5 pages of methods including currency devaluation or deflationary practices to reduce domestic inflation (Pattichis, 2001; see also De Grauwe, 1997). But as mentioned before, a one-currency economic theory makes devaluation very difficult. But Greece cannot be value its currency, especially because the currency is the Euro, which is tied to a single monetary policy (Pattichis, 2001; see also De Grauwe, 1997). This means than that Greece will have to

Floating Exchange Rates

2506 words - 10 pages nation voluntarily leaving the system or by speculators foreseeing its demise and forcing it out.The solution to that problem, monetary union--fixed rates with no devaluation or 'leaving the system'allowed--would be impossible to institute and maintain even if it were economically advantageous toall involved. The only realistic and economically sound solution, problematic though it may be, is tohave exchange rates float freely and without

Fiscal and Monetary Policy

1223 words - 5 pages open market purchases and sales- buying and selling different shares to increase or decrease the amount of money in the monetary base. These are usually permanent changes. In case there is a need for a temporary devaluation or increase in monetary amount and value, the government implements repos- the temporary buying or selling of government securities with the intention of the original owner buying back the share. When there is a dearth of money

A Review of First Monetary Policy Overburdened

1773 words - 7 pages to stimulate the economies in the short run and achieve fiscal sustainability in the long run. Moreover, this isn’t the first time when governments relied on CBs to finance their spending even though the consequence may be as severe as leading to devaluation of their currencies. Despite of the obvious side effects, loosening monetary policy i.e. expanding the supply of liquidity, allowed the governments of US, UK, Japan and Euro areas to borrow

A Review of 'Is Monetary Policy Overburdened?'

1839 words - 8 pages The article written by Athanasios Orphanides raises the issue of whether or not governments have too high expectation on monetary policy to achieve long-term goals which can only be accomplished “by the appropriate policy mix and the cooperation of other public institutions.” Orphanides focused on three major goals burdened on Central banks (CB) which are full employment, fiscal sustainability and financial stability; and developed his arguments

Monetary policies in the developing countries

3723 words - 15 pages devaluation of the Uzbekistani sum, the Central Bank should stick to long-term aims, thereby boosting aggregate demand and helping to stimulate investment, create working places, and increase the level of output. The feasibility of improving certain macroeconomic indicators requires certain level of sacrifice in terms of other indicators, otherwise the policy works ineffectively.It may seem that the monetary policy of CBU has resulted in one of

Gold Standard

1009 words - 4 pages country would get back in gold. There was also belief that increases in the amount of gold circulated would reduce interest rates and promote business.The gold standard trend caught on very quickly and soon the United States became accustomed to it. The economic devastation after World War I saw most of the developed nations suspend their gold standards (to later return to it) and all suffered from varying degrees of inflation. Devaluation is done

Exchange rate policy and the central bank

1069 words - 5 pages an attempt to lure investors into buying pounds and stabilizing the currency. A few hours later, the Bank had to announce interest rates of 15 percent.” The British Bank had to leave the British Monetary system, forcing an immediate devaluation of the British pound. This speculative attack made George Soros 1 billion Dollars! He anticipated the depreciation, converted the British pounds into other currencies, it depreciated like he predicted and

Monetary Policy Constraints in an Small Open and Dollarized Economy

1531 words - 6 pages Monetary Policy Constraints in a Small Open and Dollarized Economy Central Banks around the world use monetary and exchange rate policies to affect interest rates aggregate output and internal credit in the short run.[1] Nonetheless, in small open economies these tools have limited efficiency, since global markets determine interest rates. Many small economies use fixed exchange rate policies to control inflation or promote stabilization

Similar Essays

Currency Devaluation Essay

524 words - 2 pages monetary networks may not be sent out by stabilizing the mainly devaluation (Zaiby, 2008). Therefore, our long has planned and evaluating the result makes for us is that devaluation is not good tools for profitable growth in the money supply in the country.After its first devaluation in 1995 Pakistan has experienced a lot which has caused an infinite inflation pressure on the economy, Pakistani rupee got devalue in terms of gold by 57.1% and

The Impacts Of Devaluation On Export Performance: The Case Of Ethiopia

1254 words - 5 pages . Devaluation is a monetary policy that lowers the price of domestic currency in terms of foreign currency, thereby increased exchange rate of domestic currency per a unit of foreign currency. Theoretically, it is usually assumed that devaluation equilibrate balance of payment, thereby improves export competitiveness. However, there are possibilities that devaluation might worsen the balance of payments instead of improving it. Primarily, the

Impacts Of Devaluation On Export Performance

1404 words - 6 pages , dominantly with US dollar which impact the efficiency in trade. Devaluation is a monetary policy aimed to stabilize trade imbalance and balance of payment deficit by lowering the price of domestic currency in terms of foreign currency and/or increase in exchange rate of domestic to foreign currency (Krugman, Obstefeld and Melitz 2012). Theoretically it is usually assumed that devaluation improve export competitiveness by equilibrating trade

Reserve Assets For Financing And Regulating Payment Imbalances

857 words - 4 pages RESERVE ASSETS Reserve assets are instruments available with government authorities for financing or regulating payment imbalances, it comprises of monetary gold, special drawing rights (SDRs) and foreign exchange. Central bank and treasuries use this instrument in financing the deficit. The reserves are also the balancing figure of the balance of payment account. If sufficient reserves are not available, a country needs to borrow money from