AURICOIN
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AURICOIN

The Devaluation Of a Currency

We all know that the devaluation of a currency is undesirable, but we do not always understand how it works, how it is generated and what the direct social repercussions are. In this article, we briefly explain the causes that provoke the devaluation of a currency, as well as the consequences that derive from it.

Origins

As we well know, coins and notes have no value in themselves, as they are not a product, but should simply have a function. According to Alicia Girón, PhD in Economics: “Currency is a measure of value that makes exchange easier”. Therefore, currency replaces a real value, but it is not worth by itself.

There are many theories that have been created to achieve devaluation of currencies, they intervene in the devaluation of a currency, and among the most relevant we can highlight:

Increase in the amount of money that circulates without increase in the wealth of the country. When this happens, the circulating money cannot be backed by reserves and therefore decreases in value. An incorrect theory since money has no backing, it lacks a reserve.

During the Bretton Woods Agreements, it was decided to adopt the US dollar as an international currency, under the condition that the Federal Reserve (the central bank of that country) held the gold standard, but as of 1971 it was definitively bankrupt; so the dollar became a factor in a fiat currency backed by a US government tax and without intrinsic value, but with a legal value of its own imposed by a government.

A currency is devalued according to the theories: Because of a drop in demand for the local currency. Or, by an increase in the demand for the foreign currency. This is somewhat illogical, since the local or foreign currency has no support, the two currencies are valued at = zero “0”.

In general, devaluations occur when in international markets there is:

Deficit in the trade balance. This happens mainly when more is imported than exported. How can the value of a coin be given by this theory? Let’s take an example: Haiti, being the poorest country in the world, what exports? Can it compete with the US? This theory cannot be applied to money, it is a fallacy.

Distrust in the local economy or in the stability of the country itself. This can be caused by internal problems of a political or social nature, wars, and acts of terrorism, among others. How can these causes influence money, which must be used as a neutral, stable, safe and reliable intermediary so that it can be used for the exchange of goods and services? This is an insult to our intelligence.

Outflow of foreign capital. This is a direct consequence of mistrust: foreign investors prefer to take their money to countries with stable economies and find it more convenient to lend their money to governments with higher interest rates.

In some cases, the central bank itself decides to devalue the currency. It is an extreme and rare measure that seeks to reduce imports and boost local production: since imported products become more expensive, the population tends to prefer national ones. When a politician in a country decides to devalue the currency, it is mainly when internal debts can cause civil unrest, due to the internal debt that the government has. And the only way he sees is to devalue the currency, hurting the national economy, just to achieve the internal balance of payments.

What a devaluation causes.

One of the immediate consequences of a devaluation is the increase in the price of imports, since the national currency has a lower value compared to the foreign currency; more money is required to import both goods and services.

Since the money we receive remains the same, but it has lost value internationally, in our personal economy, the devaluation is reflected in an increase in the prices of imported clothing and footwear, food products of foreign origin, travel, telephone services, and the money you have in banks, the product of people’s work, magically loses its purchasing power, destroying the economy, among other things.

References:

Girón, Alicia. Basic concepts of economics. UNAM, Institute of Economic Research. Mexico, 1994.

The question we should ask ourselves is, how can it serve if money is used as a Deposit of Value, if money also becomes a product and is given value according to supply and demand?

Deposit of Value, the duty to be of the money. Money is useful if it is a good deposit of value, when a person exchanges a product and accepts money for the exchange, money must function as a safeguard of the value of the product (stable) that is exchange. What makes it essential that money have an immovable referential value, so that people do not lose the goods and services they have deposited in money.

As money can be devalued or manipulated by external factors, it cannot be used as a Deposit of Value, because it does not keep the value of the goods and services deposited in it. Let’s keep in mind that:

“The reason for the creation of money is so that people stopped using barter, which consisted of exchanging goods or services for goods and services as well. This way of exchanging used, brought enormous problems to develop the trade, since an egg producer wanted for example a tunic (suit used in ancient times), it was extremely difficult to achieve the exchange, since if he looked for the manufacturer of the tunic and he did not want or did not need the eggs, the exchange was frustrated.

For this reason, money was created; to be used by people and companies in the exchange of goods or services through a neutral, fair, safe, reliable and stable intermediary (money), and this to function, its value must not be influenced by interference or external factors”.

The Auricoin money achieved its stability and immobility. Since the referential value of 1 Auricoin is equal to the purchasing power that $ 888.88 USD had, as of November 23, 2018.

1 RIC = $ 888.88 USD.

This simple formula applied to Auricoin money is what makes it useful, the only one existing in the world, which has the three functions of Medium of Exchange, Unit of Account and Deposit of Value, which is the duty of money. For this reason, Auricoin Money is essential for the economic and social development of all Humanity.

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