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Speculative Demand for Money and Devaluation in Current Situation

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In the current situation of COVID-19 each economies are badly disturbed and almost dead economic activities. Every country is facing the lockdown situation which is taking the business to depression. The situation is the same like 1930’s worldwide great depression. In all this scenario a good businessman has to know some keys to earn profit and maintain business.

Keeping a strong and reliable currency to earn profit Is a good business idea. For this purpose, you have to know the functions of money.

What is devaluation?

A reduction in the value of a nation’s currency concerning the other countries is known as the devaluation of the currency. In this situation country’s currency adjust deliberately downward. This is a governmental activity also because govt increase the supply of money to devalue it. the economic function can be as

VC= f ( MS )

*VC = value of currency

*MS = money supply

There is an inverse relationship between both variables.

In devaluation exchange rate of currency fall in order to other currency leads to decrease the purchasing power and less you can buy.

Devaluation in the current situation:

During the current situation, every currency is badly collapsed and economies are almost frozen. In this case, the reason of devaluation is not the money supply. It is the result of non-governmental activities. Due to dead business activities throughout the world, the currencies are not stable and purchasing power of currencies are decreasing and people are unable to find the safe money to hold.

Effects of devaluation on business

In the normal situation of devaluation, imports become more expensive and exports cheaper. It would appreciate exports and depreciate the imports. That means devaluation secures local business in a normal situation. it also draw in the foreign investors.

Devaluation also causes hyperinflation in the century by decreasing the purchasing power of a currency.

On the other hand, when domestic currency devalue, people feel insecure to hold domestic money for speculation or to earn profit. In this case, they prefer to hold some reliable foreign currency for their business purposes. They have to choose a reliable, secure and risk-free currency from currency war.

But the current situation is not a normal situation but some part of the devaluation effects are functional. As each country is preferring to fulfil their desires within the country because the imports are expensive and trade relations are badly damaged

Speculative demand for money and devaluation:

Businessman speculates money to earn profit as it is a some type of investment. Investors hold most reliable money to earn profit.

Usually people hold bonds to speculate money. because they don’t want to hold a bundle of money and prefer to keep a paper equal to bundle. In short people hold money to store wealth.

Speculative demand for money depends upon interest rate. The function can b as

Lsd = f ( i )

*Lsd = speculative demand of money

* i = interest rate

There is a direct relationship between interest rate and Lsd. Increase in interest rate increase the risk of bond . in this situation people feel the bond as an insecure store of wealth and they sale their bonds and like to hold money to avoid the loss and keep the money as financial assets to lessen the risk.

What currency should I hold for speculation?

When you think to speculate money you first think to hold domestic currency. But if the local currency is not secure then the first thing come into your mind is to hold US dollar or British pound sterling as both are the strong currencies than the others. Here every speculator face the problem of choice.

To come with this situation you can study the performance history of currencies and then decide which currency we can hold.. We can explain this with the help of a graph.

Performance of USD since 1930

According to the Bureau of Labor Statistics, today’s prices in 2020 are 2,504.01% higher than average prices since 1913. The USD experienced an average inflation rate of 3.09% per year during this period, causing the devaluation of the dollar. This shows that the real value/ purchasing power of the dollar is decreasing day by day due to increase in the price level. The dollar has lost 96% of its value since 1930.

But In the current situation, there have been few “winners” from the coronavirus crisis, but one which won is the U.S. dollar. As investors realized that this year is the year of the economic shock that COVID-19 would cause, they sold riskier assets like bonds and stocks and keeping cash as a safety. But not just any cash. Investors all over the world wanted U.S. dollars which lead to increase in the demand of dollar that the U.S. Federal Reserve set up new swap lines to lend dollars to other countries’ central banks.

Performance of British pond since 1930

In this situation the British pound fell below $1.31, after touching its highest level since March 9th 2020, as investors dumped riskier assets and turned to safety . during this situation the Bank of England left monetary policy unchanged, saying Britain’s economy will take more time to recover from the pandemic-induced recession than initially thought.

Historical evidence proved that the USD is more stronger currency than the pound. In the current situation, the pond is insecure and all the investors are drawing out their money from great Britain.So the safe and secure currency to hold for speculation is USD. It can also gain more value in near future when pandemic over.

Situation People Faced in World War same Now:

When word war started, the US entered and supplied goods and weapons to the countries and collected much of the payment in term of gold. when world war was over, the US has enough gold stander to maintain its currency and economic situation. When every country lost their gold and face the devaluation of currency, the US kept himself out from this situation and become the most powerful country with a strong currency.

Same is in the current situation. Every country is running out its reserves but the US has enough resources to maintain its currency value.

How to get in safety:

A good businessman can get in safety by adopting some precautions before the break out of pendemic.the possible precautions can be as

– For business purposes always keep some savings in any strong currency so that you can invest more in your business when you are not getting profit or to maintain your business in an adverse situation.

– For-profit purpose always prefer to hold international money having more value in term of your local currency. USD is the best option for speculation and to get profit. When you think that your speculated currency is attaining more value, sale that out and earn more profit.

– A good businessman likes to have some gold for the store of money. And use it in future for business purposes. As he knows that the gold is a stable store of money and not devalue from its minimal value throughout the world.

Conclusion:

In all this pandemic situation, every businessman is confused and don’t know what direction should he adopt to come with this adverse and depression situation.in ear future when the COVID-19 will over, business will move to recovery and boom as well. In the current situation, try to hold money for-profit purposes. What is needed to do is don’t lose hope and keep trying. As we listened that whoever keeps struggling, always reaps the fruit. have a strong faith on yourself and pray to God to make you, more strong and give you the fruits of your struggles.

Chiravat Chearathivat (Mario)

Founder, Chairman and Chief Executive Officer

Chiravat Chearathivat is the founder, chairman and CEO of Ecommerce Website and Social Network , which he founded in 2015. Mario is responsible for setting the overall direction and product strategy for the company. He leads the design of Website ‘s service and development of its core technology and infrastructure. Mario studied Mathayom 5 (science major) at Bodindecha Sing Singhaseni School before transfer to Non-Formal Education because something and financial reason.

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Website: Mariochearathivat.com


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