Question

5. What are the advantages for a government to keep their currency weak, that is, why might governments intentionally devalue their own currency? What is the term for a government intentionally keeping their exchange rate in a certain place?

Answer 1

Answer - When the government devalues the currency , it makes the domestic currency cheaper in comparison to the other currency. Hence foreign currency is now expensive and domestic currency is cheaper.

This will lead to the more exports and the lesser amout of imports. The government through this will earn more , the GDP of the economy will increase . The government will be able to reduce its trade deficit through this mechanism.

The term used when the government deliberately reduces the value of domestic currency is called DEVALUATION.