By continuing, I agree that I am at least 13 years old and have read and agree to the terms of service and privacy policy. For Your Perfect Score in Commerce. The Best you need at One Place. Start Your Infinity Experience. Forgot Password. Enter OTP. In order to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves, often dollars, and be willing to spend them, to purchase all offers of its currency at the established exchange rate.
When a country is unable or unwilling to do so, then it must devalue its currency to a level that it is able and willing to support with its foreign exchange reserves.
A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies. There are two implications of a devaluation. First, devaluation makes the country's exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country's exports and decrease imports, and may therefore help to reduce the current account deficit.
There are other policy issues that might lead a country to change its fixed exchange rate. For example, rather than implementing unpopular fiscal spending policies, a government might try to use devaluation to boost aggregate demand in the economy in an effort to fight unemployment. Revaluation, which makes a currency more expensive, might be undertaken in an effort to reduce a current account surplus, where exports exceed imports, or to attempt to contain inflationary pressures.
Revaluation increases the value of the domestic currency with respect to the foreign currency. Revaluation is a feature of the fixed exchange rate regime, where the exchange rate is determined by the central bank or the government.
Revaluation is opposite to devaluation, which is a downward adjustment. Currency appreciation refers to the increase in the value of one currency with respect to other foreign currencies. Currency appreciation is the unofficial increase in the value of any currency. It is a feature associated with floating or managed floating exchange rate regimes. Appreciation of a currency takes place when the supply of the currency is lesser than its demand in the foreign exchange market.
Both appreciation and revaluation have similar impacts but they have some differences. Appreciation of a currency associated with a floating or managed floating exchange rate system. Whereas revaluation of a currency is associated with the fixed exchange rate regime. The exchange rate of Indian rupee has changed a lot since independence.
There have been several instances since when Indian rupee was devalued. We and our partners process data to: Actively scan device characteristics for identification.
I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Global Players. Economy Economics. Table of Contents Expand. What Is a Revaluation? Understanding a Revaluation. Causes of Revaluation. Key Takeaways A revaluation is a calculated upward adjustment to a country's official exchange rate relative to a chosen baseline, such as wage rates, the price of gold, or a foreign currency. In a fixed exchange rate regime, only a country's government, such as its central bank, can change the official value of the currency.
In floating exchange rate systems, currency revaluation can be triggered by a variety of events, including changes in the interest rates between various countries or large-scale events that impact an economy. Compare Accounts.
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