devaluing currencies and deflation

Discussion in 'Forex' started by raszorz, Jul 10, 2003.

  1. raszorz

    raszorz Guest

    if simultaneous nations are trying to devalue their currency to induce foreign trade, would this be deflating?
  2. Assuming that they're on equal footing, NO CHANGE WOULD occur.

    Say $1 = 100 Yen.
    US money stock : $100
    JApan money stock: 10,000 yen

    Both decide to double money stock (devaluation)
    US money stock: $200
    Japan money stock: 20,000 yen

    Currency rate: Still $1 = 100 yen.

    This is assuming that inflation is expected (rational expectation).

    If inflation is unexpected and applied equally, we have hyperinflation for both country. Nevertheless their currency rate would always remain the same.

  3. raszorz

    raszorz Guest

    thanks for replying;

    but i was thinking, since a yen
    that is appreciating would generally
    mean a depreciating dollar: and
    since both the japanese and the
    u.s. want a weaker currency...

    how would this be achieved for
    both countries to devalue their
    currency at the same time? wouldnt
    this be deflationary ?

  4. So yen depreciate FIRST, just they're not on equal footing.

    They canNOT have weaker currency relative to each other at the same time! Not conceivable.

    Both could be weaker against the Euro for instance, but not each other.

    Mathematically and common sense wise, Impossible.