Devaluation

Devaluation is the intentional reduction of a country’s currency value relative to other currencies. This is typically carried out by its government or central bank. This is different from depreciation, which occurs due to market forces. Devaluation is usually done in a fixed or managed exchange rate system. In these systems, the currency’s value is controlled rather than determined by supply and demand.

Governments may devalue their currency to make exports cheaper and more competitive in the global market. This can potentially boost economic growth. However, devaluation also makes imports more expensive, which can lead to higher inflation. While it can be a useful economic tool, frequent or extreme devaluation can weaken investor confidence. It can also create instability in financial markets.

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