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Featured, Financial Freedom

How do Macroeconomic Factors Affect Financial Freedom?

Macroeconomic factors such as fiscal policy, international trade volumes, national income, ease of doing business, and inflation can affect financial stability, inequality, and freedom. Most of these factors are beyond the control of individuals and play an overriding role in either increasing or decreasing the degree of financial freedom. Hence, it is vital to understand and analyze these factors to understand the extent of their influence.

Macroeconomic Factors Determining Financial Freedom

Financial freedom is highly important as it is the only remedy for perpetual financial inequality. Since the industrial age, centralized finance has been largely responsible for perpetuating financial inequality by causing inflation due to the endless printing of notes. It is thus necessary to understand the role of macroeconomic factors.

Employment Rate

The employment rate of a country is a good indicator of its prevailing economic conditions. A high employment rate indicates better prospects for achieving financial freedom. For example, if individuals earn enough money to live comfortably and have adequate savings to combat emergencies, then he or she can be regarded as financially free. Sometimes, the employment rate may be misleading as it includes seasonally employed workers earning meager daily wages and inadequate salaries. These categories of earners cannot be labeled as financially free. However, the employment rate in reality never remains stagnant and is prone to massive changes owing to the political and socio-economic factors. 

Fiat Currency Value

The real value of fiat currencies lies in their purchasing power. If earning enough fiat currencies can guarantee financial stability and better preparedness for unforeseen circumstances, then a person can be labeled as financially free. However, the endless printing of fiat currencies by governments and central banks has led to inflation. Inflation leads to erosion of purchasing power and reduces its value. Deflation may have a reverse effect temporarily but in the long run can lead to the shrinking of the economy and cause economic collapse. Therefore, fiat currency values are directly leading to financial instability and decentralized finance is the only way out that can break free of its monopoly on finance and deliver lasting financial freedom.

National Income

The aggregate income a country generates within its economy is called national income. There is a worldwide disparity in national income levels in the world. This is the reason the world has high-income, middle-income, and low-income countries. Traditional centralized financial systems perpetuate financial inequality not just among individuals but also among countries. Typically, most low-income countries have large segments of the population earning below average income and suffer from systematic denial of financial freedom as a result. 

International Trade Levels

The international trade levels affect the financial health of a country and affect other macroeconomic factors indirectly. Economies that export more and import less usually have a higher currency value and often reach a trade surplus. Gaining financial freedom is easier in such economies. However, economies that import more and export less have a trade deficit. Trade deficit countries often have high inflation rates that erode the existing value of their fiat currency quickly. This is detrimental to financial freedom and invariably leads to perpetual financial exploitation, exclusion, and inequality.

Also Read- Growth of Decentralized Finance Years And Its Impact on Financial Freedom

In Conclusion

Financial freedom is not only exclusively reliant upon individual choices and business vision. The macroeconomic factors inarguably play a critical role in determining the degree of financial freedom. When the factors are largely favorable, they can indeed liberate many people from the shackles of poverty, narrow the gap of financial inequality, and guarantee better financial opportunities. In a nutshell, favorable macroeconomic conditions favor financial freedom and vice-versa. 

 

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