Steve Chiotakis: Japan’s Finance Minister, Yoshihiko Noda was picked today to become that country’s new Prime Minister. The Japanese economy has been struggling now for decades, made worse this year by the big earthquake. But its currency has stayed strong, making Japanese products more expensive globally. So officials want to change that, by making the Yen worth — less.
Marketplace’s Adriene Hill reports now on how a country can do that.
Adriene Hill: Want to decrease the value of your currency?
Thomas Lys: Probably the single best option is to increase the money supply.
Thomas Lys is a professor at Northwestern’s Kellogg School of Management.
The basic idea here is very Econ-101-y; if the supply of money increases, the value of that money should fall. But governments have to be careful.
Lys: While the producers benefit from a weakened currency, consumers suffer from that.
Pumping too much money into an economy — like Japan’s or America’s — can cause inflation, making it more expensive to buy things. There are other challenges for government’s trying to devalue their currency.
Carl Walsh: Other things are happening as well that may be increasing or decreasing the demand for your currency.
Carl Walsh is an economics professor at U.C. Santa Cruz.
Walsh: The value of a currency can be influenced a lot about where people think it’s going.
Walsh says it’s about perception. When it comes to currency policy, people have to believe a government’s efforts will work.
I’m Adriene Hill for Marketplace.
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