Depreciation of Currency

Definition:
Depreciation of currency refers to the decrease in the value of a currency in relation to other currencies in the foreign exchange market. When a country's currency becomes less valuable compared to other countries' currencies, it is called depreciation.

Causes of Depreciation:
There could be many reasons for the depreciation of currency such as:

- High inflation
- Low-interest rates
- Political instability
- Low economic growth
- Trade deficit
- Increase in supply of currency

Impact of Depreciation:
Depreciation of currency can have both positive and negative impacts on the economy of a country. Some of the impacts are:

- Positive impact:
- Boost exports: Depreciation makes the country's exports cheaper, making them more attractive to foreign buyers, which boosts export revenues.
- Increase in tourism: Depreciation can attract more tourists, as it makes the country a more affordable destination.
- Increase in foreign investment: Depreciation can make the country's assets cheaper, making it a more attractive destination for foreign investors.

- Negative impact:
- Increase in import costs: Depreciation can lead to an increase in the cost of imports, as it makes them more expensive.
- Inflation: Depreciation can lead to inflation, as it makes imported goods more expensive, which can increase the cost of living.
- Decrease in the standard of living: Depreciation can decrease the standard of living, as it makes imported goods more expensive, which can lead to a decrease in the purchasing power of the people.

Conclusion:
Depreciation of currency is a complex issue that can have both positive and negative impacts on the economy of a country. It is important for policymakers to carefully monitor the exchange rate and take appropriate measures to mitigate any negative impacts.

When the value of currency decreases then it is called depreciation because done by market forces that is demand and supply and not intentionally by govt.(devalution).