All topics -> Lithuania -> Economy
2008-11-25 00:48 - Devaluation of Lithuanian currency (MatasM)
One of the most popular questions nowadays – will the devaluation of litas will be performed. This topic will be dedicated for:
- clearly presenting the advantages and disadvantages of devaluation of litas for Lithuania, local companies and residents (see below);
- following the provided information connected to the devaluation of litas both in local and foreign media. In the introduction of the topic articles with links will be provided where the devaluation of litas was mentioned. This will be helpful when following the developing news chronology (see below);
- discussing the possibility of litas devaluation.
Devaluation is considered:
- When the country’s current account deficit is increasing rapidly – more is spent than received;
- When the country’s export stops – product produced in the country becomes uncompetitive abroad, which causes the decrease of production and increase of unemployment;
- When the budget deficit of the country is increasing – in pursuance to increase income of the country and decrease the budget deficit due to unincreased expenses;
- When willing to decrease the foreign debt (this is relevant when the most part of obligations is in local currency);
- when the reserve of the foreign currency is runs low – after the devaluation the value of foreign currency relatively increases.
Advantages of devaluation:
- the country increases the competitiveness of its products, export increases as well – products are produced for the same price in local market, however due to the depreciated currency exchange rate the products become cheaper abroad (competitive);
- Production increases due to the increased export;
- Unemployment may decrease, since more workers will be hired in companies exporting products and services;
- Residents, who have loans in local currency, would win, since they would have to return relatively smaller amounts to the bank. Banks would experience serious losses.
Disadvantages of devaluation:
- Import decreases – the importers cannot compete with the local production price-wise;
- purchasing power of the residents would decrease – if all goods and services were local, in that case the purchasing power would only decrease abroad, since less could be bought for the same currency;
- Inflation would increase – since the country imports most of the material for manufacturing from abroad, the expenses of companies would increase. The expenses then would be an additional weight on the shoulders of the residents by increasing prices of production and services;
- Consumption would increase – residents would economize less (deposits), would not invest in financial products (insurance, pension, securities) – the increasing inflation would make the economizing financially unprofitable;
- Financial difficulties would occur to the people who receive determined disbursement – pensioners, teachers – they would have difficulties living out of their salaries;
- Reliance of partners abroad would decrease as well as the appeal of the country for the foreign investors, since we would appear as an unreliable country;
- adoption of EURO would be postponed for 2 years later than the actual forecasts (2012 - 2013) – the time Lithuania spent connected to the Second currency rate mechanism of the euro zone (ERM-2) would be worth 0 again;
- the residents, who have loans in foreign currency, would encounter serious difficulties, since the amount which they would have to pay the bank back would be significally larger than the amount they have borrowed.
Comments
MatasM
„Ekonomistai prabyla, kad mūsų valiutos susaistymas su šiuo metu įvairių negandų purtomu euru nėra neišjudinamas, ir siūlo diskutuoti apie tai, su kokiomis valiutomis ar jų krepšeliais litą būtų naudingiau susieti. Verslą tokia perspektyva domina, tačiau įmonių prioritetas yra stabilumas.“
Saugiausia valiuta – ta, kuria gaunamos pajamos
„Neblėstant spekuliacijoms dėl euro žlugimo, specialistai primena vadinamąsias saugias valiutas – Šveicarijos franką, Japonijos jeną, JAV dolerį ir keletą kitų. Kita vertus, analitikai sako, kad ir jos neapsaugo santaupų nuo nuvertėjimo, ir siūlo nepamiršti auksinės santaupų laikymo taisyklės.“
MatasM