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The primary causes that result in currency appreciation are:
Let us understand how currency appreciation can impact an economy.
Numerous factors may cause currency appreciation and depreciation. Let us understand the critical differences between the two.
Characteristics | Currency Appreciation | Currency Depreciation |
Definition | A rise in a country’s currency with respect to other international currencies | A decline in the country’s currency value as compared to other currencies |
Imports vs exports | Money appreciation leads to cheaper imports and causes an increase in demand for imports. | The exports become cheaper as a result of currency depreciation. As a result, exports may rise. |
Foreign Debts | In currency appreciation, the cost of funding foreign debt is reduced compared to the national currency. | The cost of funding foreign debts with respect to national currency is not reduced in case of currency depreciation. |
Currency appreciation denotes the increase in the value of one currency in relation to another currency. As the value of domestic currency appreciates, exports tend to drop, and imports may increase. On the other hand, currency depreciation occurs when a currency’s value falls as compared to other currencies.
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