What is CURRENCY DEVALUATION ?

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Anonymous User asked 14-Dec-2017 in Banking by Anonymous User

What is CURRENCY DEVALUATION ?

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Anonymous User answered 16-Dec-2017 by Anonymous User
The decrease in the value of a currency compared to the value of other respective currencies is considered as the devaluation of a currency.
Basically, a currency of a country is stated as devalued when it loses its monetary worth in comparison to other currencies in the foreign exchange market. A currency's devaluation is the result of a countries monetary policies and guidelines.
What is CURRENCY DEVALUATION ?
Understand it with a short example:
A central bank can make the conscious effort to make its currency less valuable. If Country XYZ's currency is set at a fixed exchange rate of 2:1 to the USD and, because of a weak economy, XYZ cannot afford to pay the interest rate on its debt outstanding, XYZ may devalue their currency. This means the central bank of XYZ will declare their fixed exchange rate to be 10:1 to the U.S. dollar.
Which makes the debt outstanding worth five times less. It's a very tricky maneuver with grave economic consequences.

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