Impact of local currency depreciation:
1, the depreciation of local currency has an impact on import and export income. By lowering the price of domestic goods relative to foreign products, the devaluation of a country's currency makes foreign people increase their demand for domestic products, while domestic residents reduce their demand for foreign products, which is conducive to domestic exports and reduce imports;
2. The purchasing power of foreign currency is relatively improved, and the depreciation of domestic goods, services, transportation, accommodation and other expenses is relatively cheap, which is conducive to attracting foreign tourists, expanding the development of tourism, and promoting employment and national income.
3. The depreciation of the local currency also has an impact on international capital flows. If the trend of depreciation continues, people will transfer funds from their own countries to other countries, resulting in capital outflow.
Extended data:
Monetarism analysis
Monetarists believe that the deficit is purely a monetary phenomenon, which occurs when the increment of money demand is less than the increment of domestic credit level. Under the fixed exchange rate system, excessive money demand should be made up by foreign exchange surplus, while excessive domestic credit creation is reflected in deficit. If the money demand remains unchanged, the change of domestic credit level is fully reflected in the change of foreign exchange reserves.
The long-term impact of the former surplus on output and employment is completely offset by the loss of foreign exchange reserves. Under the condition of fixed exchange rate system and capital flow, money supply is independent of domestic credit policy. It is the change of foreign exchange reserves rather than the change of domestic credit level that makes up the difference between domestic money demand and domestic money supply. This is the principle of monetarism about compensation, that is, under the condition of constant money demand, reducing foreign exchange reserves will inevitably improve domestic credit level.
Monetarists also believe that there are four outlets for the excess money supply that exceeds the money demand: buying domestic and foreign physical assets and buying domestic and foreign financial assets. Among them, the consequences of purchasing domestic physical assets are only part, that is, increasing output may improve the balance of payments, while other ways will lead to the deterioration of the balance of payments. In a word, on the whole, the excess money supply is the cause of the balance of payments deficit.
Baidu encyclopedia-balance of payments deficit