Business, Legal & Accounting Glossary
Devaluation is the reduction in the value of a currency, relative to all other currencies. In a fixed-rate regime, only a country’s central bank can undertake devaluation of its currency. The impact of devaluation is to make exports less expensive to foreign buyers and imports more expensive for domestic buyers. Thus devaluation will shift a country’s trade balance, or balance of payments. Sufficient devaluation is presumed to make a country so much more competitive than other countries that competitive devaluation can in effect be considered the export of unemployment. However, following the Asian currency crisis, there is evidence devaluation is not always expansionary. The IMF has as part of its mission the mandate to discourage devaluation for competitive reasons in order to maintain the stability of exchange rates. The opposite of devaluation is revaluation.
Devaluation is lowering of the exchange value of a particular currency. Devaluation is also understood as lessening of the value of a particular good or service. This is done by bringing down the amount of gold that is available against a particular currency. Devaluation is also defined as a significant drop in a currency’s value in terms of another currency.
Devaluation is often used as a corrective economic tool. It is used to address a deficit in the balance of payment. Devaluation normally happens in terms of each and every currency but its impact is highlighted in terms of a significant currency like the United States dollar or Euro for example.
It has been observed that when a particular currency faces devaluation, goods and services of that particular country become cheaper for other countries, whose currencies are higher in value compared to the particular currency that has been devalued.
Balance of trade may be defined as the difference of imports made by a country and exports made by same. It is the most significant component of the balance of payment of a particular country. Balance of trade is also referred to as trade balance.
Currency is a form of money that is accepted within the geographical boundary of a country. Currency includes paper notes and coins that are issued by national governments of respective countries. Currency is used as a medium of exchange in case of goods and services.
The current account is the difference between the export of goods, transfers and services by a particular country and import of the same by that country. Calculation of current account balance does not include categories like transactions in debts and financial assets.
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This glossary post was last updated: 29th March, 2020 | 2 Views.