Hey guys... Im just really having a big headache over this 1 thing... And i really dont know what will happen and also i dont know ny other forums i can discuss this... So im just gonna ask this here if its okay. Ok here it goes. What would happen to the country currency exchange rate if a country like philippines for example would be able to pay their debt fully? For example 2billion+ dollar or peso? Debt fully paid. From the exchange of 1$ = 50 pesos What would happen to it? Would it become 1 to 1 or ??? Can anyone help explain im just really confused?
paying off their debt would not make their currency stronger. currency value depends on the economical output. the demand of the said currency and such. you were lazy to google what determines the value. you lazy twat
It has nothing to do with debt so nothing would change. The factors affecting are public confidence in the currency and economic production power. Unless they use some strange value based currency system, which is rare.
Or i just forgot to actually used google cause my brain got fried. Lol. Anyway thanks for the help Ok thanks atleast i can clear my head with this!
Even if we pay that debt, philippines is still a third world country. Still crappy sewage and still crappy water line. That doesnt make us go up in the world standing or something. Even without debt, we still cant be something like US nor China or even Japan.
scenario one, goverment used reserves to pay all debts - if this is aplicable (most of the time isn't) then it could increase trust in the currency and increase its value (not directly to one to one) but if the reserves remaining are no longer suficient to allow normal activities of the country it could cause an economic colapse scenario two, goverment issue new amount of currency to pay all debts- bad idea, you are devalurizing your currency, for example of what happens see germany after ww1 and modern venezuela
^^^^^^ if you want it to gain value, it doesnt matter how much debt you have what is important is to have very active economy do you know why america has oneof the higher value moneys? because almost all big companies are there and very active there o.o
Scenario two only works as long as people still trust the money. They're willing to turn a blind eye if it's done in small amounts, but if you do it in huge amounts with nothing to back it as collateral, then people will only trust in its value in ever-increasing amounts. Aka, hyperinflation. I'm still wondering how the Venezuelans managed to nail down the value long enough to set the price of coffee that morning.
"Debt" is also a very wooly form of measurement, there are some "debt" calcuations that you really want your country to have. For example, if your country had a government owned national bank open to the public and everyone in the country is hardworking and reliable and love to save that they all have enough saved that they can go for 2 years without working, your government on paper would have a debt of 200% of their GDP. But is that a bad thing when all your people have saved enough that they can tolerate almost any economic recession? So as you can see, "debt" does not tell you the whole story. You also need to see what kind of debt it is and how is it calculated. Some Opposition parties love to create trouble using this method of "not telling you the whole story" and just implying any "debt" is bad. This actually isn't true, the reason why is because they had a period of time when they had a role as a World Banker because they sold a massive amount of weapons in WWII so they ended up with holding most of the world's gold. They could not afford supporting a whole global economy and the role collapsed when they delinked the USD from the Gold Standard but the habit of treating the USD as the world's reserve currency is still there. The British Pound for example is higher valued than the USD and ironically another one is the Kuwaiti Dinar. Personally, I think that the USD is overvalued due to its popularity, I have my doubts that the economic activity of the US is actually sufficient to account for its value but that is just my suspicions. History, making a mess out of simply, logical systems lol.
Unless you go to the same lengths as the Weimar Republic to pay off any debts, ie making any money in that currency worth close to nothing, debt has very little if any effect on the actual currency exchange value.
Now that I think of it, I wonder if the hyperinflation was intended to screw France over since the repatriations were set in Marks so if the currency crashed, they would be paying France in near worthless money so in actual fact they would be paying France less in actual purchasing power.
First of all, you need to know what a debt is (in the context of national debt). When we speak of debts we mean two different things, national debt, and national obligation. When we speak about national debt, it simply means the debt the government owes to everyone who buy their bonds. When the government wants to do something, and the budget required is more than the amount of income it has, it will issue bonds. These government bonds will then be bought by foreign investors whether it be another government or institutions inside a foreign country (so called foreign debt) or institutions inside its own country (so called internal debt). These bonds can also be bought by individuals through the respective institutions. Together, foreign debt and internal debt makes up national debt. You're probably asking, can sovereign bonds be paid early? The answer is nothing's stopping them, but why would they want to do that? Sovereign bonds can last many years, the one Ai-chan's dude bought has a maturity date of 10 years (probably, didn't really check). Instead of paying it off early, it is more beneficial to use any spare budget to build infrastructure or project that can make the most of the money borrowed by stimulating the economy. When they pay off sovereign debts, they will still have to pay the interest. So borrowing 1 million and then returning 1.8 million ahead of time is waste of time and if the additional .8 million is instead invested in profitable ventures, the value of the borrowed money can probably jump to as much as 3 million. So even if you were to pay off 2.5 million at the end of the maturity period, you would still benefit with a value of .5 million. This is just the value of the venture, government's not being paid back .5 million, alright? You're probably asking, that is if the venture is profitable and successful, but what if the venture is not successful? Well, tough luck. The government will probably have to issue sovereign bond again or raise taxes to cover the maturity period of the previous debt . But raising taxes by itself causes issues, people's spending power reduces and businesses are no longer profitable, and in the long term actually reduces your tax income. Therefore, sovereign bond is generally a better decision. Not only do you not touch people's wealth, you are also increasing people's wealth while at the same time completing beneficial projects. Now you're asking, what if the Philippines pay off all its debts? Frankly, if it does pay off all its debt within the next 20 years, the Philippines economy would stagnate, because in order to do so, the Philippines will have to cut spending on military, infrastructure, construction and social activities, resulting in companies related to these activities to go bankrupt or have greatly reduced income. In turn, this can negatively impact the currency value as due to economic stagnation, nobody really wants to buy anything other than the barest essentials as people turtle themselves into saving and reduces their spending. When we talk about national debt, we do not talk about national debts on its own. We talk about national debt in relation to its GDP. What this means is, can the national debt be supported by its GDP? This is the bigger problem with the Philippines, because over the years, its national debt is not being supported by its GDP. It is incapable of paying off its own national debt, or at least, it is approaching that level. Therefore, lending money to the Philippines is a huge risk since there's a chance that the country won't be able to pay off the debts and will have to default. Or in case of Greece, refuse to pay. That's what credit ratings are for, if your country has a low credit rating, that means the interest they have to pay when they offer sovereign debt is higher than normal. This then makes the situation worse for the country if they were to borrow money. Now your question, what would happen to the country's currency when it pays off all its debts. The short answer is nothing happens. The currency is not tied to the national debt. So what is a nation's currency tied to? It's either of two things. The first one if your country's currency is pegged to something, it will only change following the value of that item. If your nation's currency is pegged to the US dollar, it will float in the market following the value of US dollar. If your currency is pegged to commodities like oil or gold, it will float following the market value of the commodities it's pegged to. The second one is a more free form floating currency. What this means is, the value of your currency is tied to the market confidence on your economy as well as your nation's ability to manage its inflation rate. Inflation rate will take too long to explain, so let's talk about it another time. The value of your currency is dependent on how much people want your money, so called floating exchange rate, based on supply and demand of your currency. That being said, having a low exchange rate is not necessarily bad. China for example is known for purposely devaluing their own currency to encourage foreign investment. Japan had the economic might to raise the value of their currency, but chose not to do so as it would be an extremely expensive endeavour in more ways than one. You also need to consider the inflation rate and the citizen's purchasing power. What's more important is currency stability, not currency value.
You forgot method 3) manipulate currency to increase value, use the new value to exchange to a different currency, manipulate currency again to devalue it then exchange other currency back into your currency and manipulate your market again to increase currency value then pay off part of the debt and repeat until debt free. Due to the fact economies in socialist countries are easily manipulated by the government though artificial drops in production and then going back to normal most countries won't fall for it but a certain country constantly manipulates it's currency value for trade purposes and is actually quite proficient at manipulating it's currency to benefit itself.
Or modern Zimbabwe I have a 10 trillion dollar bill from that that before they had total failure of their currency was worth about 9.50 usd
Sadly enough, even if we manage to pay all our debts, the system still sucks. Every field u hav a problem and theyre not even trying to fix it because they cant. Then some dudes saying some big stuff change and all u get is nothing and they still take your money anyway.
Scenario 4, invest all your of the country resource in counterfeiting other countries currency, use counterfeit money to invest in other countries (insert it into their market) to devalurize their currency as well as buy your debt through third parties/ shell companies
It might've been one reason for it. But the way they went about it was so... obvious, that it didn't really help the situation at all.
Singapore right? It's one of the unique systems that is an example of a rare value based currency system in the world. They buy a lot of other country's currency and average it out into theirs to create a currency that is a bit like Goldilock's porridge to all its major trading partners, neither too hot nor too cold. It's an interesting concept and a good way to control inflation since it averages all the fluctuations out among all the "basket" currencies. Pity it relies on other people's currency to do it so they really do not have direct control over it. They adjust by buying or selling the fluctuating currencies but if all of them goes down, they have no choice but to follow.