The Feedback Loop Of Currency Failure

Hey Jessinterionalists

As each country faces off, it's on economic disaster some will fare better than others, the further you get from the US the more shit out of luck you are, since they're the only ones able to print money out of thin air, where the rest of us have to borrow to print.

The so-called developed nations with their superior GDPs will tend to have more time to devalue their currencies; you'll see currencies like your AUD, GBP, EUR, CAD seem relatively stable while the rest of the developing world's currencies drop like a rock.

In 2020, we've seen the likes of Turkey, Brazil, South Africa and Lebanon have massive percentage losses 20% or more in their purchasing power relative to the top currencies. To those in other countries, they breathe a sigh of relief that at least it's not them or don't even notice because these countries don't make up that big a slice of global GDP.

I also think the fact that global trade isn't what it used be, provides another layer of complexity. We cannot gauge the currency loss effects and how imports and exports, as well as work and travel, are affected.

The fact is, should all be said and done and we can get back to freely travelling around the world again and locally, what will this new battered and buried economy be like?

There are indeed bigger forces at play than currency devaluation in smaller nations, but as these currencies continue to devalue it makes it increasingly harder once trading does pick up and we try to get back on our feet.

So why do I bring this up if it's not such a "big deal"? Because I think it's going to have long-lasting effects on the way we do business and how countries operate with one another.

Failing from the bottom up

Let's take the South African Rand for example since it's my local currency, (but you can apply this to your shitty currency too if you like) as it continues to lose value to the US dollar it kicks off a few trends.

Firstly, South African corporations and the government who borrowed in US dollars to fund projects or purchase goods and services now need to pay even more than before on their debt.

This means they pass on the cost to the customer or citizen. Government debt repayments mean higher tax for citizens, corporates struggling with higher prices means higher prices for consumers I'll give you an example, an iPhone in the US costs $999 the same iPhone her would cost 80% more, around $1799 if you account for conversions.

This makes it increasingly harder for the ordinary citizen to maintain a certain quality of life, as imported goods increase in price.

Additionally with our money not going as far, South African's won't travel as much, you're not going to see them taking holidays to the US, UK, Europe, Australia and they'll opt for better value in other countries instead.

Labour arbitrage

Labour becomes cheaper, countries like the UK and US, for example, outsource a lot of their labour to South Africa, since we're an English speaking nation, as our currency shits the bed, our labour is cheaper, putting pressure on UK companies to outsource more, hire fewer locals and kills the job market locally.

Exports

Exports net us less if the currency continues to devalue there's less value coming in to export, prior I could export my grapes to France for `x value now its the same value or less once I convert.

This means less money comes into local economies, and production slows, meaning less availability, meaning prices internationally have to be pushed higher to make it viable for local producers to export at old levels again.

The currency song and dance

Floating currencies mean import and export and certain relationships between countries need to be kept within a certain range to be viable fo broth parties if these ranges break down, trade breaks down and everyone losses.

To maintain these range pegs, places like the US, EU, AUD, CAD need to devalue their currencies to keep up and maintain these ranges.

It's a song and dance to keep in tune with one another, but its also dance to the bottom. As each country has different arrangements with one another, each currency that breaks well below their range affects a lot of trading partners, and it starts a knock-on effect.

While it may not be as evident now, without competitive devaluation in the next few months, we could bring global trade to a halt once again. Killing more currencies in the process and then the feedback loop continues.

Do you really want to hold your wealth in something like this? I know I don't!

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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