devaluation

In economics, the lowering of the official value of a currency against other currencies in a fixed exchange rate regime, so that exports become cheaper and imports more expensive. Used when a country is badly in deficit in its balance of trade, it results in the goods the country produces being cheaper abroad, so that the economy is stimulated by increased foreign demand. Revaluation is the opposite process.

The increased cost of imported food, raw materials, and manufactured goods as a consequence of devaluation may, however, stimulate an acceleration in inflation, especially when commodities are rising in price because of increased world demand.

Devaluation of important currencies upsets the balance of the world's money markets and encourages speculation. Significant historical devaluations have included that of the German mark in the 1920s and Britain's devaluation of sterling in the 1960s. To promote greater stability, many countries have allowed the value of their currencies to ‘float’, that is, to fluctuate in value (see exchange rate).