Why countries devalue their currencies What is inflation How are currency exchange rates defined

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A video explaining how currency exchange rates are defined, why certain currencies are valued more than the other, and how demand and supply affects the economy and pricing of goods. • One can learn from the early barter system, how and why money was introduced into the system, and how people would go about valuing products and goods back in the day. • This video explains the barter system, pricing of goods, currency exchange rates, and how countries devalue their currency - All in one. • A barter system is an old method of exchange. This system has been used for centuries and long before money was invented. People exchanged services and goods for other services and goods in return. • Barter usually only exists parallel to monetary systems to a very limited extent. Market actors use barter as a replacement for money as the method of exchange in times of monetary crisis, such as when currency becomes unstable (e.g., hyperinflation or a deflationary spiral) or simply unavailable for conducting commerce. • Adam Smith, the father of modern economics, sought to demonstrate that markets (and economies) pre-existed the state. He argued (against conventional wisdom) that money was not the creation of governments. • Markets emerged, in his view, out of the division of labor, by which individuals began to specialise in specific crafts and hence had to depend on others for subsistence goods. These goods were first exchanged by barter. • Specialisation depended on trade, but was hindered by the double coincidence of wants which barter requires, i.e., for the exchange to occur, each participant must want what the other has. To complete this hypothetical history, craftsmen would stockpile one particular good, be it salt or metal, that they thought no one would refuse. • This is the origin of money according to Smith. Money, as a universally desired medium of exchange, allows each half of the transaction to be separated. • Barter is characterised in Adam Smith's The Wealth of Nations by a disparaging vocabulary: haggling, swapping, dickering. It has also been characterised as negative reciprocity, or selfish profiteering. • Anthropologists have argued, in contrast, that when something resembling barter does occur in stateless societies it is almost always between strangers. • Barter occurred between strangers, not fellow villagers, and hence cannot be used to naturalistically explain the origin of money without the state. Since most people engaged in trade knew each other, exchange was fostered through the extension of credit. • One reason a country may devalue its currency is to combat a trade imbalance. Because exports increase and imports decrease, it favours a better balance of payments by shrinking trade deficits. That means a country that devalues its currency can reduce its deficit because of the strong demand for cheaper exports • Currency devaluation, in its simplest terms, is a situation where a country allows the value of its own currency to drop in relation to other currencies. Many countries across the world have done so at one time or another in order to achieve certain economic objectives. • Devaluing a currency reduces the cost of a country's exports and can help shrink trade deficits. • In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. • When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. • The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualised percentage change in a general price index, usually the consumer price index, over time. • Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. • As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health. • In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency. • Economists generally believe that very high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. • Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. • The consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. • #BarterSystemExplained #CountriesDevaluingCurrency #Economics10

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