Currency devaluation is a deliberate downward adjustment of the value of a country’s currency against another currency. Devaluation is a tool used by monetary authorities to improve the country’s trade balance by boosting exports at moments when the trade deficit may become a problem for the economy.
After devaluations, the same amount of a foreign currency buys greater quantities of the country’s currency than before the devaluation. This means that the country’s products and services are likely to be sold at lower prices in foreign markets, making them more competitive.
Devaluation usually takes place when a government notices regular capital outflows (or capital flight) from a country, or if there is a significant trade deficit (where the total value of imports outweighs the total value of exports).
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