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Money and credit - Ivanov V.M.

13.4. Exchange Rate Impacts

Changes in the exchange rate affect the development of internal business processes and the foreign economic position of the country. We are talking about the impact of the exchange rate on foreign trade, the movement of long and short-term capital, the balance of payments of the country. Depending on the goal of foreign economic policy, the government chooses various instruments of foreign exchange regulation. Widely used methods of devaluation and revaluation of monetary units.

Devaluation - targeted actions aimed at lowering the exchange rates of the currencies of one's own country in order to stimulate consumer demand in the domestic market, increase competitiveness and improve the country's trading position in the world market.

Revaluation is an action aimed at increasing the national currency exchange rate in order to maintain consumer demand in the domestic market and stimulate commodity imports and foreign investment inflows. Revaluation is the opposite of devaluation.

The main methods for regulating exchange rates are:

• foreign exchange intervention;

• currency restrictions;

• a wide range of measures to regulate the balance of payments.

Distinguish between national and international (collective) regulation of exchange rates. In the first case, the subjects are the central bank and the state treasury, in the second - international currency organizations.

The mechanism of foreign exchange intervention is aimed at buying, selling its own currency or the competitive currency of another state. Such operations affect the change in supply and demand in the foreign exchange market.

Along with foreign exchange intervention, the corresponding regulation of central bank discount rates is widely applied, an increase in which leads to an increase due to an increase in demand, the exchange rate, and a decrease to a decrease in this rate.

They also use the method of direct state intervention in the mechanism of formation of exchange rates. It is used to control the movement of capital, block foreign exchange earnings, and regulate the export of currency by citizens.

Exchange rates are affected by the regulation of the country's balance of payments through export subsidies and customs tariffs.

The practice of international monetary relations has developed a number of principles of monetary policy to ensure its civilized development.