What is currency depreciation?

Currency depreciation is when a country's currency loses value compared to other currencies, meaning it takes more units of the depreciating currency to buy one unit of a foreign currency.

What are the primary causes of currency depreciation?

Common causes include high inflation rates, lower domestic interest rates compared to other countries, large current account deficits, political instability, and capital flight from a nation.

How does currency depreciation affect imports and exports?

It makes imports more expensive for domestic consumers and businesses, while simultaneously making a country's exports cheaper and more competitive in international markets.

Is currency depreciation always detrimental to an economy?

Not always. While it can lead to higher inflation and reduced purchasing power, it can also boost export-oriented industries, stimulate domestic production, and attract foreign tourism by making the country more affordable.

What is the difference between currency depreciation and devaluation?

Depreciation is a market-driven fall in value under a floating exchange rate system, whereas devaluation is a deliberate, official reduction in a currency's value by a government or central bank under a fixed exchange rate regime.