how the devaluation of a countrys currency rids the country of its debts?


how the devaluation of a countrys currency rids the country of its debts?

In: 1

It doesn’t plain and simple.

These two things often go hand in hand but the cause and effect are almost certainly the opposite. If a government of a country decides to default on its debt, then it a signal that the country has very serious economic difficulties and/or the government is inept. In either case, there would be very little confidence in the government. Therefore few would want to hold on to their currency leading to a devaluation.

Devaluing a currency often makes it even more difficult to service debt owed in other currencies. So it does nothing to reduce the debt and, in fact, makes it worse.

Let’s pretend money is Pokémon cards and you have the ability to print Pokémon cards. You owe someone a Charizard (US dollar). You have the ability to print a Charizard and you do so. You can use that to pay off your debt. Sure, Charizards are less rare and so they are worth less now. But at least your debt is paid and people are still going to want Charizard.

Now let’s say you still owe a Charizard but can only print Magicarp (German Reichsmark). It takes 100 magicarp to trade for the Charizard you need. So you print 100 Magicarp, but now you printed so many that they are worth way less. You’ve paid your debt, but now all of the people who already had Magicarp can’t trade for what they need anymore. You may have gotten rid of your debt, but you also wiped out people’s savings by making it worthless. With enough rounds of this, people are suddenly need wheelbarrows of magicarp to pay for things.