A very good article here that comes closer than most to what I consider the crunch issue. The key point is that if a currency moves down so that imports become ‘more expensive’, then the ‘inflation’ that goes off is a distributional response that tries to eliminate some of those imports so that the exchange demands equalise. That also eliminates somebody else’s exports.
The important thing to remember is that when a currency goes down, all the others in the world go up in relation to it and nations that rely upon exports (export led nations) start to lose trade - which depresses their own economy.
Any one of those other economies can intervene in the foreign exchange markets, purchase the ‘spare’ currency and that will halt the slide for everybody. And all exporters to an import nation have a central bank with infinite capacity to do that....New Wayland
NeilW
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