KUALA LUMPUR – The United States is indeed a highly unique economy and, of course, the world's largest economy as well. When the US itself experiences an economic downturn or crisis, the US government, like governments elsewhere, will typically inject liquidity into the market, hoping to stimulate the economy through increased capital circulation in its free market. It is hoped that with such fiscal injection, the spending power of the average consumer and the procuring power of businesses would increase, thus ramping up demand for goods and services, and the purveyors of such goods and services would also have the increased capacity to supply. Economic activities would, therefore, become vibrant and grow accordingly.
While this economic stimulation approach is understandable in countering economic downturns or crises if done in other economies, an excess of money in circulation (or an increased money supply) will not only lead to inflation but, more likely than not, also result in a depreciation of the local currency. This is because while more money in circulation will stimulate demand for goods and services in such an economy, at some point, the external market simply cannot or would not be willing to absorb such money, leaving the local market to increase prices for goods and services to rack in such increased money supply, resulting in local inflation. The increased supply of the local currency, which is not as highly demanded internationally as major currencies (such as the US dollar), also means more such currency will be correspondingly needed for exchange, thus depreciating the value of the local currency.
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