Currency revaluation may be a question for some people. For example, why is it necessary, and what are the economic impacts? This term itself seems unfamiliar to the general public, but it is now understood by those involved in it.
In essence, revaluation is an economic action where the official exchange rate of a currency is increased by the government. This is done for various purposes, and it is considered a beneficial step for the country. To understand why this is necessary, let’s explore the explanations below.
Revaluation to Control Inflation
Revaluation is carried out by the government for several important reasons. The first reason for doing this is to control inflation. Inflation is something that is never expected to happen in any country because it can have negative impacts on various aspects of people’s lives.
The impact here is, of course, related to the economic conditions of the people. If the exchange rate of a country’s currency is too low, the prices of imported goods will become expensive.
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The rising and continuous skyrocketing of prices for imported goods can lead to inflation. Moreover, the prices of imported goods that do not decrease can increase inflation.
Conditions like these are certainly undesirable for anyone. Therefore, the government needs to take decisive action to prevent this inflation. That’s why it is recommended to undergo the revaluation process.
By conducting revaluation, the government aims to stabilize the prices of imported goods. This is ultimately related to reducing the likelihood of inflation in a country.
Increasing Competitiveness Through Revaluation
Furthermore, revaluation is also carried out with another positive intention for a country. This is done as an effort to increase economic competitiveness, especially in the current era filled with many new products and offers of services with certain sophistication.
In the current era of globalization, competition between countries is very tight, and this competition extends to the business and economic sectors. This condition raises concerns for the country.
Revaluation can be a solution for the government to enhance competitiveness, especially the competitiveness of locally produced products that are then exported to other countries.
By conducting revaluation, the exchange rate of the currency can be increased. As a result, the prices of various export products may be cheaper than their usual prices.
If exported goods are sold at a lower price, these products become more competitive in the international market. Lower prices for products will attract other countries to purchase them. This condition can stimulate the economic growth of a country.
Increasing Purchasing Power Through Revaluation
All the discussions provided earlier offer a unique perspective. It is now understood that revaluation has a significant impact on the economy of a country. It cannot be denied that revaluation can increase the purchasing power of the public.
This even becomes the best opportunity for people to consume various products. When the exchange rate rises, it not only affects the exported goods, but the prices of imported goods also become cheaper than usual.
The decrease in the prices of various imported products encourages people to buy a variety of products. Consequently, consumer behavior becomes more consumptive, and the purchasing power of the public can be considered higher.
In this case, people will take the opportunity to buy more goods with the same amount of money. The fulfillment of people’s needs can be easier and faster. Welfare can be said to increase with the fulfillment of people’s needs. This, of course, can support economic growth.
Revaluation Can Attract Foreign Investors
There is another reason why a country needs to undergo revaluation, and this is related to foreign investment. Generally, foreign investors want to invest in countries with high currency values. Therefore, if revaluation is done, it will create attractiveness for the country for foreign investors.
At least, this can further attract the interest of foreign investors to invest. Basically, a country’s currency with a high value is often eyed by foreign investors. Foreign investors usually feel more confident to invest in such a country. Foreign investors also make investments with the hope of getting corresponding profits or even more profits.
Therefore, revaluation can also increase foreign investment. This increase can happen directly and help accelerate economic growth. In addition, the influx of foreign investment also has other positive impacts, such as the creation of new job opportunities.
Revaluation basically not only has positive impacts but can also have negative consequences. For example, the export sector of a country may be affected because its products become more expensive in the international market.
This can reduce the competitiveness of the country’s exports, and over time, the country’s exports may experience a decline or downturn. Consequently, there will be a decrease in income obtained from the export sector.
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Therefore, the government needs to carefully consider anything related to this matter. This includes when and how often revaluation should be done. If not done with consideration, it can have unfavorable consequences for the country.