It is the job of the government to keep a country’s economy in check. But sometimes policies don’t work out as planned. Governments often take economic decisions that follow specific political agendas , and these decisions are not always beneficial for everyone.
Take, for example, a currency devaluation – the deliberate downward adjustment of the value of a country’s currency. This should, in theory, reduce the cost of a country’s exports and increase the international competitiveness of its goods. However, a currency devaluation can also impact consumers inside the country where it takes place.
We studied one such situation in 2015 where a currency devaluation affected the lives of consumers in the central Asian country of Kazakhstan. Our findings show that the currency devaluation made poor consumers poorer and wealthy consumers wealthier in relative terms. Kazakhstan’s currency, the tenge, plunged after the government stopped managing the exchange rate in August 2015.
The move was made in response to falling prices of oil (the country’s main export) and earlier devaluations by its two main trading partners, Russia and China. After one month, the tenge had lost 37% of its value against the US dollar, which increased to 56% after three months and 78.5% after six.
This led to inflation far higher than the figures seen in the EU and the UK over the past few years. A currency devaluation typically leads to inflation because foreign goods can become more expensive .