How exchange rates affect the economy

How exchange rates affect the economy
Table of contents
  1. Exchange rates overview
  2. Effects of exchange rates on the economy
  1. Inflation and interest rates
  2. Encourages money laundering

Currencies are valued differently across nations due to factors that include local production and bargaining power. We will look at how these diverse exchange rates affect the economy.

Exchange rates overview

 Exchange rates are rates that currency is valued against another. While most countries fixed their exchange rates, it is more complicated than arbitrary currency fixing. A company economy needs to be able to back its monetary value with goods and services production. This is why countries with good local production like China, the USA, the UK, Germany, and Japan have good exchange rates compared to other developing countries. Countries, like Venezuela and Zimbabwe who have little or nothing to bargain with, have very poor exchange rates. Some countries like kuwait have a high exchange rate but don't match with its local production, this is what is known as 'facial exchange'. 

Effects of exchange rates on the economy

While many people may not directly feel the effects of exchange rates, indirectly exchange rates affect everyone. Let's look at some factors that make the exchange rate affect the economy. 

Inflation and interest rates

 A weak denomination means a poor exchange rate. This will affect the economy of nations and steer them towards inflation like most nations are going through now. For citizens with poor exchange rates, they will buy foreign products at huge prices compared to local goods. A good example is due to Bolivia's inferior exchange rate, a citizen will use Chevrolet at two times the amount a US citizen will buy it. 

Encourages money laundering

 When a country's exchange rate is weak, individuals with enough wealth will not save in the country but launder their money to foreign accounts of stable economies. This is visible among Africa and South American politicians, who steal money, but keep it in foreign accounts, thereby weaken their countries' economy. The bottom line is that every nation should try to improve its currency to mitigate the dire effects on the economy.

Similar articles

The Economic Impacts of a Slowed Progression in AI Technology: A Look at the GPT-5 Delay
The Economic Impacts of a Slowed Progression in AI Technology: A Look at the GPT-5 Delay
In the rapidly evolving world of technology, artificial intelligence (AI) stands at the forefront of innovation and economic growth. This constant progress in AI technology has significant impacts on the global economy. However, what happens when this progression slows down? A prime example can...
How AI Chatbots Like ChatGPT are Transforming the Digital World
How AI Chatbots Like ChatGPT are Transforming the Digital World
In the digital era, the landscape of communication and interaction is drastically changing. This transformation is largely credited to the new-age technology of artificial intelligence (AI) and its various applications. Among the most notable of these applications are AI-powered chatbots, which...
A new battery design that could revolutionize the world
A new battery design that could revolutionize the world
A new battery design that could someday power electric cars and other devices for a longer period of time is currently in the works. The current battery model-Zinc air batteries—are lightweight, compact, and made from more sustainable, less flammable materials, but they are usually not rechargeable...
Bosnia’s Visegrad hydropower dam threatened by huge islands of garbage
Bosnia’s Visegrad hydropower dam threatened by huge islands of garbage
Huge islands of garbage floating on some rivers in the Balkans are currently threatening the regional hydropower plant in Bosnia. It has also raised concerns from environmental scientists over the pollution crisis in the state. Threat to Bosnia’s Visegrad dam caused by broken barrier The threat to...
Jair Bolsonaro claims Brazil is broke
Jair Bolsonaro claims Brazil is broke
Jair Bolsonaro, Brazil’s far-right president, claimed on Tuesday that his country is broke and his hands are tied. He blamed the situation on the “press-fueled” coronavirus, which has infected more than 6.8 million, and led to the death of more than 198,000 people in Brazil alone. Jair Bolsonaro’s...
Heart diseases : One of the top biggest killers globally
Heart diseases : One of the top biggest killers globally
Based on recent statistics, 1.73 million people globally have died as a result of coronavirus. But as a result of the inadequate data, it is not clear as to how deadly COVID is. Cardiovascular issues have long been recognized as the biggest causes of global death. Within 2020, heart ailments and...