How can financial repression affect your pocket?

Have you ever heard of the concept of Financial Repression? And if you did, you didn't ask yourself why now? How will this financial instrument affect your investments? Good investors, so let's take action.

What is financial repression?

It is a concept in which it challenges us, since to date the economy is suffering a global crisis. By definition, we understand financial repression as an instrument used by governments and central banks to control inflation and economic growth. This is achieved by manipulating inflation rates and the amount of money available in the financial system.

How does financial repression work?

When interest rates rise, it becomes more expensive for businesses and consumers to borrow money, which deters indebtedness and consumption and reduces inflation and economic growth. This is because individuals and companies have to pay more for the money they borrow, so they may be less likely to go into debt. On the other hand, when interest rates are reduced, it becomes cheaper to borrow money, which stimulates indebtedness and consumption and can lead to increased inflation and economic growth.

You can also control inflation and economic growth by manipulating the amount of money in circulation. For example, when the central bank buys government bonds, the amount of money available in the financial system increases, which can stimulate consumption and economic growth. This is because when buying bonds, the central bank puts more money into the financial system, which can encourage indebtedness and consumption. On the other hand, when the central bank sells government bonds, it reduces the amount of money available in the financial system, which can reduce inflation and economic growth.

Negative Effects of Financial Repression

Financial repression has been used in many countries throughout history and remains a commonly used tool by governments and central banks to control the economy. However, it can also have negative side effects, such as increasing inequality and restricting long-term economic growth.

• Slow down economic growth: Continuing with the previous example, we can indicate that If interest rates rise, it may be more difficult for companies and consumers to borrow and this can slow down economic growth.
• Currency devaluation: When interest rates are very low for an extended period of time, it may be more difficult for central banks to raise interest rates in the future to control inflation. This can be a problem because if inflation gets out of control, can damage the value of money and negatively affect the economy.
• Proliferation of vulnerable sectors: Financial repression can have a disproportionate impact on different groups of people, such as those with a greater dependence on indebtedness to finance their consumption and those with investments that are more exposed to changes in interest rates.

What investments are recommended during financial repression?

Therefore, during periods of financial repression, investors may seek assets that are not as sensitive to changes in interest rates, such as real estate investment, high-quality corporate bonds, and stock dividends.

La investment in properties emerges as an alternative for investors during financial repression because changes in interest rates do not directly affect their value.

One of the most attractive options in the real estate investment world is real estate tokenization because, by dividing real estate into tokens, real estate can be accessed with a smaller investment and, therefore, with less sensitivity to changes in interest rates.

In addition, being a real estate investment Tokenized, it can provide a solid and predictable revenue stream by generating rents or increasing the value of real estate. This can cause the real estate tokenization is an attractive option for investors during periods of financial repression, when investors may be looking for assets that offer less sensitivity to changes in interest rates.

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