How will the currency devaluation affect on exchange rate in the global recession.?

Question

If we all go down together, how will this affect on currency exchanges?

It seems the values of the currencies will remain the same as today.

Is my understanding correct?

Or, are there any other scenario or issues I should consider?

Answer 1

In theory you are correct .. however different countries are ALREADY effected differently by the 'credit crunch'

Some countries are nearer to recession that others, some may be able to reduce the effect of a recession easier or more effectively than others, some countries / companies are announcing specific measures (tax rebates, staff layoffs, fund raising, reducing the Fed (interest) rate etc.) in an effort to hold off recession, others are simply 'hoping for the best' ..

So exchange rates are ALREADY fluctuating wildly as investors confidence and expectations change with every new market announcement ..

Answer 2

The currency with the greatest weight of liability will sink the fastest, as a stone falls faster than a feather, then it is incumbent on the relevant government to bring in measures such as salary and price control restraints to slow devaluing currency. This is political dynamite and extremely unpopular, so a government needs to be sure of its ground or resolve may be lacking.