What is appreciation?

It is a term for an increase in the value of goods or commodities. It usually refers to an increase in the value of a domestic currency against a foreign currency within a floating exchange rate system.

 

What are the implications of appreciation?

In particular, there is a significant increase in the purchasing power of a given money in international settlements.

What is it caused by?

Appreciation is most often a consequence of deflation, i.e., a prolonged decline in prices below the average level, implying an increase in the purchasing power of money.

What aspects affect the occurrence of appreciation?

The occurrence of appreciation is usually due to an increase in the attractiveness of domestic goods in foreign markets, an increase in interest rates on government bonds and treasury bills, and an increase in foreign investment.

How do central banks usually affect the onset of appreciation?

Most often, they use the purchase of domestic currency, carried out using the foreign exchange reserve, and raising interest rates on Treasury securities.

What are the effects of appreciation on the ordinary citizen?

The repercussions can be seen primarily in the amounts of mortgage installments. When the zloty strengthens against a foreign currency, such as the Swiss franc – experiencing appreciation against it – the installment amount then usually falls, due to the possibility of buying it cheaper.

What are the negative aspects of appreciation for the economy?

As foreign capital increases, exported products become less competitive, which, combined with driven imports, results in a deterioration of the country’s trade balance.