Why does devaluation of a currency affect other economies?

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Photo Courtesy: Philip Brewer on Flickr

 

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists” – Ernest Hemingway

Global economy is a complex ecosystem of multilateral trade, currency, resources, people (Human capital), and other key indicators that determine a country’s strength in the marketplace. Each of these factors are intertwined with one another in both local and global context. Although these factors are not entirely in human control, central banks and governments can – to some extent – impact changes through policy decisions. Any changes in the perceived or actual value of a factor will ripple across the ecosystem and affect the economy as a whole. Apart from the measured forces (factors) in an economy there are few unknown forces that can only be predicted, forecasted, or assumed –  for example, positive market sentiment when government is actively pushing pro-business reforms.

Devaluation of a currency, in simple terms, means that the intrinsic value of a unit of currency has decreased. For example, When INR is devalued, the amount of products/ goods/ services that 100 INR bill can purchase decreases. This leads to: inflation in home economy as purchasing power of 100 INR bill decreases, increase in petrol (and other petrochemical products) prices as imports become costlier, increase in fiscal deficit due to high import costs. The consequences are not just limited to the shores of domestic economy, they are observed in distant economies too. Why does this happen?

In these times of globalization, every country is out in the market to buy commodities, goods, services, financial instruments, etc. from a country that offers the best price; and to sell domestic goods at a competitive price to increase its global market share. In this process of buying and selling (imports and exports respectively if you like) between countries, the transaction is made by exchange of currencies. Higher the value of home currency, more products can be bought, and (more importantly) less products or services can be sold because higher value of currency makes it expensive for others to buy. Hence they will search for cheaper alternative if available.

In order to understand this better let’s examine how the Aug 2015 devaluation of Yuan ( Chinese currency, also called Renminbi ) has send shockwaves across all developed and developing nations.

Over the past three decades Chinese economy has grown more than four-and-half times that of India in the same period with exports being the main driver of growth. Due to anticipation of US interest rates rise, US dollar has appreciated pulling along Chinese Yuan as the latter loosely tracks dollar making Chinese exports dearer compared to regional competitors. Low industrial production, fall in factory gate prices, plunge in stock markets, and rising fears of slowdown in growth have made it imperative for Chinese authorities to push reforms and stimulate economy. People’s Bank of China responded to this apparent crisis by devaluing Yuan against dollar which resulted in nearly 3% depreciation and biggest one day fall in 20 years.

While China has taken these steps to trigger fresh stimulus in order to meet its goal of above 7% GDP growth, it has caused the following repercussions around the world:

  1. Markets in Shanghai closed 8.5% down – worst single day fall in 8 years.
  2. Nikkei index in Japan slipped by 4.6%
  3. European bourses were down 4-5%
  4. Dow Index was down 4 %
  5. Emerging market currencies are tumbling
  6. Index of 22 Commodities compiled by Bloomberg is at its lowest since 1999
  7. Oil price has hit a six-and-a-half-year low

(The above observations are taken from an article published in The Economist under Business and Finance section. It can be referred here for more information.)

This type of reaction is not same for every economy. It highly depends on country’s position in global trade, state of global economy, and over dependence on a particular economy. Many a times such reaction is a combination of multiple factors ranging from growth outlook to international monetary conditions.

In conclusion, any change in macroeconomic indicators of an economy will have its impact on the region, and sometimes on the whole world depending on the state of economy.

 

References:

  1. Why China has devalued renminbi and how it will affect the UK
  2. The Effects of Currency Fluctuations on The Economy
  3. Economic effect of a devaluation of the currency
  4. Why has China devalued its currency and what impact will it have
  5. The causes and consequences of China’s market crash
  6. Eight reasons why China’s currency crisis matters to us all
  7. How China’s currency devaluation could raise prices in the US

Source of image: https://www.flickr.com/photos/bradipo/1435739708

 

 

Animals make great models!

Animals are best subjects for photography for various reasons: One, They never pose (cats are exception!). Two, They don’t ask to show preview after every click. For a photographer, they present immense variety in style, composure, and expressions that a human model can never match.

Animal photography is a type which doesn’t require one to be a pro. With little understanding of animal behavior and lots of patience anyone can make good pictures.

An affordable, safe, and convenient location for animal photography is your nearest Zoological park.

Some useful tips before going to Zoo for photography are given below:

  1. Check weather. Its preferable to go in cloudy or cool weather.
  2. Take only one zoom lens with you. Try to be light and fast.
  3. Lens hood to prevent scratches on lens from fences.
  4. NEVER use flash. It irritates animals and can be dangerous.
  5. Always make sure that you are at safe distance.
  6. Search for different angles and composition.
  7. Never shoot standing among the crowd. Doing so might damage your lens.
  8. Try to predict the next move of your subject.
  9. Getting best pictures might take lot of time. Come prepared with lots of patience.
  10. Try to go alone or with photographer friends to avoid distraction.

These are some of my photographs from a recent trip to Zoo in Hyderabad.

Lioness yawn

Hippopotamus Yawning

Lioness water play

Cheetah

Butterfly

IMG_0329

White Bengal Tiger

Feel free to share and download the images for wallpapers.

– Khalid Khan

I adopted a Rhino!

It was a pleasant afternoon with cloudy sky, when Sai Vijay was totally occupied in quenching his gluttonous appetite. Standing on a green carpet of well-maintained grass, in close proximity to his Mother – called Shakuntala – Sai Vijay, pure vegan that he is, was content by eating grass and bushes. He looks well-built, muscular, and has a height of around 170 cm. Because of his bulky size and shape, he takes all his time, with remarkable calmness, to move around. The Sai Vijay I am talking about is the one who has become dear to my heart in our first meet. He is the Indian Rhinoceros.

Sai Vijay lives in Nehru Zoological Park, Hyderabad. My team members have adopted him by taking care of his expenses for a quarter.

Baby Indian Rhinoceros. Rhinoceros in zoo. Hyderabad

Indian Rhinoceros at Nehru zoological park, Hyderabad.

We went to Zoo not just for hangout with team – which we did! – but with a bigger purpose in mind. All team members have contributed money to adopt Sai Vijay because unfortunately due to human greed his species has become endangered.

A lot of Rhinoceros are hunted for their horn. Poaching of these harmless, peace-loving beasts is rampant in north-eastern parts of India and South East Asia. Their horns are used for making traditional medicine which, some believe, has incredible healing power. In the last count only about 200 Indian Rhinoceros are left and hence they have been classed as endangered species and are protected.

Forest officials and ‘friends of animals’ all over the world have taken many measures to deter poaching and save Rhinoceros. September 22 is marked as World Rhinoceros Day to create awareness and educate people about the dire situation. Many volunteers have come forward to adopt animals at Zoo and pay their expenses for a particular period. In return they get some perks like tax benefits, free Zoo tickets, free car entry pass, and their name board is displayed near the animal’s field. Above all this, the love one feels after adopting an animal is priceless. Some people have joined various organizations that work closely with Zoo staff and educate visitors.

My team and I have made a humble effort by adopting a Rhino. You can also help to preserve endangered species by taking one or all of the below actions:

  1. Spread awareness about endangered species.
  2. Visit near by zoo park, national park or national reserve.
  3. Avoid plastic use. Try to recycle, reduce, and reuse.
  4. Plant a tree in your backyard.
  5. Build a bird water tank in your balcony.
  6. Group with your friends and adopt an animal.

For more information about endangered species, visit the below sites:

  1. 10-easy-things-you-can-do-to-save-endangered-species
  2. Help-Endangered-Animals