The Impact of Public Debt on Exchange Rates

Debt is integral to both businesses and economies, but must be closely managed to prevent it having the disastrous consequences we have recently experienced. By borrow large sums of money, countries can afford to invest in massive public projects, which normally has a positive impact on their national economy. However, the greater a country’s debt, the faster inflation is likely to rise and hence the repayment of the debt will be in a currency of lower value. For this reason, foreigners are less likely to invest in the currency of a country with high debt, therefore the exchange rate of that currency will fall.

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