Impact of Currency Devaluation on Consumer Prices in an Economy

Principal Investigator:
Cheik Ouedraogo

Faculty Advisor:
Chen Meng

Abstract:
The devaluation of currency is common when there is a downward adjustment of currency’s value in a country to balance trade. The devaluation of currency in a country affects the stability of prices depending on the economic factors and the monetary policy responses. The devaluation of a currency decreases the cost of exports and increases the costs of imports, which makes them less attractive. With increased exports and decreased imports due to higher prices, a better balance of payments occurs with shrinking deficits (Mashao & Choga, 2023; Lavallière et al., 2023). This research evaluates the impact of depreciation on consumer prices in an economy. The research design employed in this study is qualitative research design. The data collection methods included the review and analysis of existing secondary sources of information, including published market research, academic journals, published research, and government records. The analysis method is thematic analysis to identify the effects of currency devaluation on price movements in the economy. The findings of the research show that the devaluation process affects the stability of prices depending on the economic factors and the monetary policy. interventions used. Currency devaluation makes exports cheaper for foreigners while imports become more expensive for the country. The exports, therefore, have increased competitiveness as imports decrease. The high cost of acquiring goods in the affected country is transferred to the consumers, which leads to increased consumer prices and inflation pressure. To conclude, the devaluation of currency in an economy, therefore, increases consumer prices.