Answer to Question #108511 in Macroeconomics for Dave

Question

How can a country stop the devaluation of their currency during exogenous macroeconomic shock (COVID-19)?

Answer 1

With an open devaluation, the Central Bank of the country officially declares the devaluation of the national currency, depreciated paper money is withdrawn from circulation, or such money is exchanged for new, stable credit money (but at the rate corresponding to the depreciation of old money, that is, lower).

In case of hidden devaluation, the state reduces the real value of the monetary unit in relation to foreign currencies without withdrawing the depreciated money from circulation.

The most effective means against hidden currency devaluation is to increase the efficiency of the economy, switch to high technology, innovation, increase investment in the national economy, and inflow of capital. Such measures as currency interventions, sterilization of the money supply, legislative restrictions can only give a temporary result.