In this article, We learn about "Currency Devaluation ".Let's Go!
Currency devaluation is a monetary policy tool used by a government to deliberately reduce the value of a country's currency relative to another currency, currency group, or standard.
Currency devaluation is the deliberate lowering of the value of one country’s currency relative to another.
Currency devaluation is a tool used by monetary authorities to improve a country's trade balance by promoting exports when trade deficits may become an economic problem.
After the depreciation, the same amount of foreign currency can buy a larger amount of domestic currency than before the depreciation.
This means that the country’s products and services may be sold at lower prices in foreign markets, making them more competitive.
Depreciation usually occurs when the government notices that a country is experiencing regular capital outflows (or capital flight), or is running a significant trade deficit (the total value of imports exceeds the total value of exports).
The government can use this function when the country implements a fixed or semi-fixed exchange rate.
A government devalues its currency to improve its trading position in the world.
For example, in 2015, the People's Bank of China devalued the RMB by changing the market mechanism of the exchange rate of the RMB against the US dollar.
This makes the yuan weaker, making Chinese exports cheaper.
As a result of this devaluation, there are concerns around the world that other governments may seek to protect their export markets and devalue their currencies, potentially sparking currency wars.
Currency Devaluation vs. Currency Devaluation
Devaluation is a deliberate act and should not be confused with currency devaluation, which is a non-government activity that causes the value of a currency to drop.
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