Currency devaluation

Raising interest rates

Cutting government subsidies

Privatisation of public companies

Free trade policies

Slimming bureacracy

Easing regulation to attract investors

High poverty rate

Lack of sizeable middle class

Low literacy

Weak governance

Poor infrustructure

Influenced by Thatcher and Reagan neoliberal policies

Monetary system that is influenced by supply and demand

Has great flexibility in responding to the global economy

Created by the US and its allies at the end of WW2

An ounce of gold was valued at $35 while other currencies would fluctuate against the dollar as the demand and supply changed

States agreed to keep currencies at no more than 1% higher or below the fixed exchange rate and if it did central banks would buy excess dollars or sell its own currency until currency moved back

Managed by Great Britain unti end ofl WW1

Linked value currency to value of gold

Self-regulating: corrections occured automatically

If a country experienced a "balance of payments" corrections occured via price adjustments

Overvalued currency is used to make imports such as food, machinery and oil cheaper however it rarely benefits LDC's because their soft currency which is not used in international trade and finance.

Inflation: overall increase in prices of goods and services. Weakens the purchasing power of the currency.

Undervalued currency: when the value of the currency is lower than it ought to be. A currency may be undervalued when its purchasing power, supply and demand are strong but its price is still low.

Advantages: Cheaper exports

Disadvantage: makes food and oil that is imported more expensive + Reduces living standards of citizens

If a countries currency appreciates, local comapnies will suffer because their exports will be expensive for other nations. However, imports such as food and oil will be cheaper.

If the currency depreciates companies that export products will thrive due to the cheap prices of ist goods and services.

Central banks are able to alter the value of the currency if the demand is low by buying up its own currency (using foerign currency) or selling it.

Whether the currency is hard or soft

Currency appreciation or depreciation

Interest rates and inflation

Trade deficits

Public debt

Hard currency: Currency that is not likely to fluctuate or depreciate greatly. Example, US dollar, Euro, Pound and Yen. Currency is used and accepted for international trade

Soft currency: Currency that is likely to flutuate or depreciate greatly due to the domestic economic and polictical conditions of that state. Not accepted as payment in international trade.