How does inflation influence currency values in the long run?

Inflation generally weakens currency values in the long run due to its impact on purchasing power and economic stability. When a country's inflation rate rises, the purchasing power of its currency decreases, meaning that it takes more of that currency to purchase the same goods and services. As inflation erodes purchasing power, investors and consumers may lose confidence in the currency, leading to a decline in demand for it.

Additionally, persistent inflation can prompt central banks to implement higher interest rates in an attempt to curb inflation. While higher interest rates can make a currency more attractive to foreign investors seeking higher returns, the original cause of the inflation can still overshadow this effect. If inflation remains unchecked, it typically creates uncertainty in the economy, leading to a depreciation of the currency against others in the long run.

In contrast, a lack of inflation, or very low inflation, often correlates with stronger and more stable currency values, as it implies a healthier economic environment where the purchasing power of the currency is maintained. This context underscores why the notion that inflation tends to weaken currency values is widely accepted in economic analysis.