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High inflation erodes a currency's value. Learn the direct link between a country's inflation rate and its exchange rate โ and what it means for your savings.
Countries with higher inflation than their trading partners typically see their currency weaken over time. The reason: if goods are getting more expensive domestically, the same local currency buys less โ both at home and abroad. This is called purchasing power parity (PPP) โ one of the most reliable long-run predictors of exchange rate direction.
The nominal exchange rate is what you see quoted โ how many dollars per euro. The real exchange rate adjusts this for inflation differences. If Turkey's nominal rate stays flat but Turkey's inflation is 60% while the US is at 3%, the real rate implies significant Lira overvaluation โ which is why the Lira tends to weaken year after year.
When inflation rises, central banks typically raise interest rates to cool the economy. Higher interest rates attract foreign capital seeking better returns, which can strengthen the currency short-term even during high inflation. This is why the USD often strengthens when the Federal Reserve hikes โ even if US inflation is also rising.
In extreme cases โ Venezuela, Zimbabwe, the Weimar Republic โ hyperinflation destroys currency value entirely. When a currency loses credibility as a store of value, people rush to exchange it for foreign currencies or hard assets like gold. This accelerates the collapse. The lesson: never hold large cash savings in a high-inflation currency for long periods.
If you hold savings in a currency from a high-inflation country, consider diversifying into more stable currencies or gold-denominated assets. Regularly compare your currency's real performance (not just the nominal rate) against the dollar or euro. Use the historical chart tools on this site to visualize how your currency has moved over 1โ5 years.
Use our live converter with real-time rates and historical charts.