Economy affects all spheres of human life, because to know its terms and processes is necessary.The reason for this is the availability of money in your wallet and the need to use them as a payment instrument.And concepts such as devaluation, inflation and default, most often found in news reporting.They mean different processes that affect the economic development of the state.Of course, this also affects the welfare of the individual.And what exactly takes money out of the purse and reduces their purchasing power, should understand in more detail.
devaluation
Analyzing what the devaluation and default, you should immediately pay attention to the fundamental difference between the processes.Read about it below.Devaluation - is the process of reducing the economic cost of the currency exchange rate to another currency or a decrease in the proportion of gold in national money.This phenomenon of unplanned slowdown of the economy, which makes it impossible to maintain the exchange rate at the same level.
in the narrow sense of the devaluation - this is the decline in the value of money, which implies the subsidence rate.For example, the exchange rate "A" in the currency "B" was 1 to 1. Then, after the recession of the economic development of the country, which uses the currency "A", its currency became cheaper against the currency of "B".In fact, she fell and all other currencies.This treatment allows you to expand the concept of "devaluation" in plain language.
Defaulted Defaulted - a rejection of the economic entity to perform previously taken credit or other debt obligations.It occurs as a result of economic recession or due to devaluation, high inflation or failure of economic reforms.This means that the subject, namely the government, the economic bloc, a company or individual can not pay the loan due to lack of available funds.Defaulted, the subject recognizes its inability to pay, even when receiving the loan guaranteed return.
himself default can occur when obtaining credit have been issued assets as collateral.Then they simply confiscated and become the property of the lender and the borrower's debts are written off.However, when there are no funds for the repayment of the loan, declared insolvency on site.Strictly speaking, an economic entity is bankrupt.After that, one has to consider scenarios, the question of what would happen in the event of default of the economy.Read about it below.
devaluation and default in the economy
So, what is the devaluation and default?The term devaluation is considered from two perspectives: in terms of pre-existing "gold standard" and the current (market) exchange regulation.If we consider that the rate of the currency is adjusted volume of foreign exchange reserves, the devaluation is the process of reducing the proportion of gold and foreign currency in the money supply stable money.This example is relevant for the Chinese yuan, whose exchange rate is not freely regulation and controlled by the People's Bank of China.Currency board is also true for many other countries.
course currency of other countries is in the market "navigation".This means that the demand for a currency unit determines its price.This forms the exchange rate, ie the value of money one state to another currency.In such circumstances, the devaluation means reducing the rate of one currency to all the others.
defaults, unlike devaluation process is a more destructive phenomenon.It means lack of funds, which must be returned on loans.The subject, ie the company, the state or a private individual, it is necessary to recognize the default.This means that it has taken some time ago, the amount of assets, but at the appointed term is no possibility of its return.Below all these processes that respond to questions about what the devaluation and default, are explained in more detail.
generality of default and devaluation processes
to understand what devaluation and default, it must be concluded that the different processes and terminology.Devaluation - is only reducing the cost of currency and default - a deep economic crisis, the total lack of credit opportunities return.In such processes, and a devaluation default, the difference is significant because it can be applied to various entities.Devaluation applied only to the state, that is, the entity that has its own monetary system and currency.The default - a concept peculiar to an individual, company or government.
However, in these processes, there are some common phenomena, as well as points of contact.The first community - the economic crisis: devaluation, and default occur in insolvency of the economic system.The second community - long-term negative consequences for the reputation: both of these processes reduce the attractiveness of currency for investment capital and for storage.The rest of these concepts are different.
Unstable Economy: Pathways to devaluation and default
What is different from the default and devaluation where these concepts come into contact?If all the differences clear, common ground can be quite different.They should be disassembled into typical economic processes of countries with underdeveloped economies.For example, there is a state "A" with a weak or unstable economies.In this country, the definition of the monetary unit, which, after the abolition of the "gold standard" provided by foreign exchange reserves.The volume of money equal to the amount issued in the State of the goods.
due to improper management of emphasis or because of economic or trade sanctions export income of the state and its enterprises reduced.Then the businesses operate "warehouse" or no longer produce.At the same time it reduced the inflow of foreign exchange, which requires the expenditure of foreign exchange reserves for the payment of social benefits or unemployment benefits.As a result, the volume of international reserves decreased.This means that there are fewer reserves to ensure the currency exchange rate.To her declining investor confidence and the economy is operating ineffectively.There devaluation: the depreciation of the monetary unit in relation to other currencies.
Ways out of the crisis
In such circumstances, the State shall decide on obtaining loans for investment in the economy.When the loans are spent irrationally, that is, for example, invested not in the stabilization of the economy and the cost of social benefits so as not to cause a decrease in confidence in the government, the result is obvious: the economy is not restructured, and the debt is still there, it's time to return credit.If the state can not pay their debts on loans or government loans, it defaults.Then the problem is solved at the international level with a view to finding a solution to stimulate the economy, means that the borrower has returned.
points of contact devaluation and default
In the above example, you can draw two conclusions: the devaluation can be an engine of default.Second, the default could be a driver of a new devaluation.That has caused the economic crisis and the lack of assets to repay debt provoke a new devaluation.This so-called point of contact of these concepts.By the way, they have nothing to do with inflation, which can also be a driver of economic crisis.
absurd concept of "default ruble»
Another misconception is the default currency.So, what is the default of the ruble?This phenomenon, which in reality can not take place, although in theory it is possible.It will be characterized as a deep collapse of the ruble currency, it will not be perceived as a means of payment abroad.During the ruble will not be able to buy even a minimal monetary unit of another state.That's what the default rate.If you recall Solzhenitsyn quotes, it would look like for our ruble will be able to give only "face".
Impact of devaluation and default on the economy
What's devaluation and default in terms of impact on the economy and on the balance of payments of economic entities?Devaluation is a process of official (or hidden) agreed that the national currency is worth less than the other, and money to stabilize its course or is not available, or their isolation irrationally.The result is a weakening of the currency, increasing the value of other currencies and, more importantly, reduce investors' confidence in the economy.
Defaulted is also a process which "humiliates" the economy in the eyes of investors.Then the currency is untenable for savings, since the devaluation and default are accompanied by still rising inflation.Money then cost a lot less than before.It felt even within the country, especially if it is regularly "printing press" to issue new banknotes.By the way, the devaluation has no effect on the domestic economy if it does not depend on imports.And inflation is detrimental affects.
Positive and negative trade effects of devaluation have
devaluation has both positive and negative consequences.On the positive side, certainly, we should point decrease in the price of export commodities.The state, which devalued, sells the goods to another country with higher and more stable exchange rates, instead of getting her products.These tools are a considerable profit.
addition, foreigners such products are much cheaper than bought from countries with well-developed economies.It is a factor in increasing competitiveness on foreign markets.What to do when the devaluation in this case?It's simple: to work and sell.Search and diversify markets and try to gain a foothold in them.Check out employees to work abroad also allows you to earn more, although this tactic harms the image of the country and threatens to "intelligence outflow" abroad.
The negative effects of devaluation in trade
negative effects of devaluation is a substantial rise in imports.What to do when the devaluation of the State?The most competent will be protected from imports through import substitution.This path is the most competent and balanced, because it allows you to restrict the outflow of foreign currency assets of the relevant country's banking system.However, when the state can not produce certain goods, for example, some food products, it is still forced to buy them.Otherwise, the population faces food shortages.The third step is that the state should not do is to print more money.The move has hurt the domestic market and stimulate both new devaluation and inflation.
forecast at devaluation
In 2015, the ruble is "released" in the "free floating" and self-regulated depending on the demand.After that, his cross rate is gradually reduced, what else influences and political uncertainty.The government plans - to start accepting payment for energy only in rubles.And that means only one thing - a course on the development of commodity economy.Fortunately, this is not the default.What is it?In simple words, this economic maneuver consisting of several components.
First, the depreciation of the ruble leads to the growth of all other currencies.Assets of Russia now almost 45% consist of dollars.This currency is known, is not backed by gold, and adopted by other countries as a reserve after the rejection of the "gold standard."Russian rubles are also in the foreign exchange reserves of other states.The devaluation of the dollar makes it possible for the existing assets in the foreign exchange reserves of the state to buy most of the ruble assets of the world and bring them back to Russia.
As a result, carrying out calculations for oil and gas will require buyers to first buy rubles for their currency, and then return them back as payment.The main thing is that the exchange rate of the ruble will be high due to the significant demand for it.Such is the long-term outlook, and this is what threatens the devaluation of the ruble in the long term.But in the short term it can still lead to another default.
What population
All that threatens devaluation can not have a strong impact on the raw materials economy.Terrible is the consequence of a default, which is possible with a strong and fairly rapid devaluation.The population in this period it is important to opt out of receiving loans.Foreign currency savings will help keep the standard of living is the way it is today.However, it should be understood that the crisis could drag on for more than 5 years.
In this situation, the most competent tactic is to save your most important assets: real estate and cars.Buying property or land in the promising areas for construction will significantly increase your capital.For the rest, it is important to live within their means, to ensure that sufficient wages.When a default occurs, the population is not affected if it is, of course, does not have his hands on the federal loan bonds.The difference between the default of the devaluation that the conditions for the appearance of a default state abandon their maturity.As for the rest, and default and devaluation did not affect the interests of the population, do not use currency and imported goods, while not accelerating inflation.
