Currency is a commodity, and when interest rates increase, it will indeed reduce the demand of some people, because not everyone can afford it, so some people are bound to give up borrowing from banks because of high interest rates. .

When banks raise interest rates, they will actually lend less money, so less money will enter circulation. On the contrary, an increase in loans will lead to an increase in currency in circulation, which will lead to inflation (called structural inflation, not vicious). Obviously, on the contrary, a decrease in circulating currency will cause currency appreciation.

That is, the increase in currency in circulation only comes from the additional issuance of currency. In fact, if you deposit 1,000 yuan in a bank and the bank lends it all out, then the currency in circulation has increased. If the borrower then deposits it in another bank and this bank then If it is loaned out, the currency in circulation will have increased by 1,000 yuan.

This process is called the product effect of money, because of course it is impossible for banks to lend out all the money deposited by customers but to retain part of it to cope with withdrawals. Therefore, its size is determined by the bank's reserves. rate (that is, the ratio of retained funds to total bank deposits).

Extended information

The reasons why currency will depreciate more:

Generally speaking, currency depreciation refers to the value contained or represented by a unit of currency. decrease, that is, the unit currency price decreases.

In other words, all money is used to exchange for all goods and services. Within a certain time range, the total amount of money and the total amount of goods are fixed. Assume that the total amount of goods is M, and the total amount of monetary goods is is 2M, then the unit price of the commodity is 2. If the total amount of currency increases, the commodity price will rise, which means that the currency will depreciate, otherwise, the currency will appreciate.

From a domestic perspective, currency devaluation under the metal currency system refers to measures to reduce the legal gold content of the national currency and reduce its price relative to metals to reduce the value of the national currency; currency devaluation under the modern paper currency system When the number of banknotes in circulation exceeds the demand for money (ie, currency inflation), the value of banknotes decreases.

From a national perspective, currency value is expressed as the exchangeability with foreign currencies, which is specifically reflected in changes in exchange rates. At this time, currency depreciation refers to the reduction in the ability of one unit of domestic currency to exchange for foreign currencies. And the domestic currency's foreign exchange price fell.