Interest rate is actually the cost of using funds. You treat money as a commodity, and borrowers can borrow money as money to buy it. When the capital supply is abundant, it is easy for borrowers to borrow, and naturally they will not spend high prices, indicating that the interest rate is low. On the contrary, if the market is short of funds, the highest price will definitely get it, and only borrowers who are willing to pay a high price can get the money, indicating that interest rates will increase.
The depreciation of the local currency is conducive to increasing foreign exchange reserves, which is conditional. Generally speaking, the depreciation of the local currency often corresponds to a large amount of capital flight. At this time, foreign exchange reserves generally declined. Of course, with the decline of exchange rate, it will stimulate the growth of domestic exports, the decline of imports and the expansion of trade surplus. Thus gradually changing the direction of capital flow, from net outflow to net inflow. Foreign exchange reserves can often increase when funds turn into net inflows.
A country can only circulate its own functional currency (for example, Chinese mainland can only circulate RMB), and the foreign exchange obtained by enterprises' export must be sold to foreign exchange banks, from which enterprises import foreign exchange. The foreign exchange balance formed by foreign exchange banks in the process of buying and selling foreign exchange, the state (central bank) buys the remaining foreign exchange from foreign exchange banks in local currency, forming the national foreign exchange reserve.
Foreign exchange reserves are a sign that exports exceed imports. In theory, other countries need to pay the currency of the exporting country to buy goods from the exporting country. A large number of exports means a large demand for the currency of the exporting country.
When the price of a country's currency falls relative to the price of a foreign currency, it is said that the currency has depreciated.
currency devaluation
Currency devaluation can be explained from several angles.
1. Under the floating exchange rate mechanism, when a unit currency is converted into foreign currency and the price drops, it is said that the currency has depreciated.
For example, when the exchange rate of the US dollar drops from 1 to 6 francs to 1 to 4 francs, the depreciation of the US dollar occurs.
2. Under the paper currency issuance system, if the paper currency issuance exceeds the demand, the value of paper currency will decrease due to currency inflation, which is called currency depreciation.
Three explanations of devaluation:
1. The purchasing power of money has declined.
2. Lowering the gold content of domestic unit currency or lowering the price of domestic currency against foreign currency is called devaluation.
Generally speaking, the value decreases: the commodity depreciates.