What are inflation and currency depreciation — and how can you protect yourself?

What is inflation?

Inflation is when commodity prices overall go up so significantly that the value of local currencies goes down. Inflation leaves people poorer than they were, often in a very short period of time. If a person could once pay for a week of groceries for 80 units of currency, but today, it costs 120 units of currency, that’s inflation at work.

It happens as a result of economic instability, political instability, and other economic factors, and is often compounded by corporate greed.

What is currency depreciation?

Currency depreciation is when a country’s currency loses its value compared to other currencies around the world. Depreciation is part and parcel to inflation: When inflation becomes so extreme, and the cost of goods is so high, local currencies become effectively valueless — especially relative to other currencies.

The difference between devaluation and depreciation

Though the two terms seem like they’d mean the same thing, they don’t: depreciation is a cause of inflation. Devaluation, according to Investopedia, is when a currency’s value is deliberately adjusted by the government to be lower, relative to another currency or group of currencies, in order to relieve trade deficits or reduce the cost of exports. 

A modern example of currency depreciation and inflation

Argentina is currently experiencing severe inflation and currency depreciation, and you can see how bad it is when you take a look at exchange rates with USD from last year. 

In January of 2022, 1 Argentine peso was worth $0.0096 USD, so 1,000 Argentine pesos were equivalent to $9.60 USD. Today, 1 Argentine peso is worth $0.0048 USD, so 1,000 Argentine pesos are worth $4.80. With a current inflation rate in Argentina of 102.5%, the currency is half as valuable as it was just over a year ago.

What can you do to fight inflation and currency depreciation and save money? 

1. Budget better — set a monthly or quarterly budget and see where you can cut expenses. 

2. Invest your savings in USD using a super wallet like Cenoa.

3. Take a side job (or multiple jobs). The side gig economy is a flexible option that can help people get through a recession. 

4. Explore passive income opportunities using sites like Gumroad.

5. Find deals, discounts, and loyalty programs for your most-purchased items.

What are the risks of keeping my savings in local currency and in local banks?

When countries experience economic or political instability, wars, crises, and government mismanagement, the citizens of the country face financial challenges — or even financial ruin.  Here’s what happens:

Cost of living becomes impossibly high 

In Argentina, virtually everything is twice as expensive as it once was — from food and housing to leisure expenditures. Salaries are only going half as far, and protests have understandably erupted as a result. 

Savings accounts plummet in value 

When currency is less valuable, so are the contents of each person’s savings accounts. Many have no choice but to attempt to ride out the instability and hope the currency bounces back, but in the meantime, their savings are worth much less. Their financial goals become unattainable. 

Local investments tank

When a country experiences severe inflation, economic instability, and currency depreciation, investors pull their funds from investments in order to cut their losses. This has widespread impacts on the economy of a country, and can often make economic crises even worse.

What can I do if my currency is experiencing depreciation?

As with all investments, start small and always diversify your investments: don’t put all your funds into one strategy, as all investments carry risk.

Try Cenoa

Cenoa is a new fintech wallet app that allows people all over the world to buy digital dollars that are always on par with USD. Just add your funds to the Cenoa Super Wallet through our trusted financial partners and save them as digital dollars. You’ll be able to enjoy the stability of U.S. currency without the challenges of buying USD, and you can withdraw your investment at any time, no matter how large or small — with no minimums, no fees, and no holding period. 

And best of all, Cenoa offers an amazing yield of up to 8%, so you can store your funds as stable digital dollars and watch them grow — even if your local currency is experiencing depreciation.