What Is Meant By The Term Devaluation?


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Muhammad Abdullah786 Profile
Devaluation means lowering the value of currency in terms of foreign currencies. There is difference between devaluation and exchange depreciation. Devaluation is the result of official government action, whereas depreciation or decline in the rate of exchange of one currency in terms of another is due to market forces. Substantially devaluation and depreciation both refer to the reduction of international currency in terms of foreign currencies.

When the rupee was declined from the dollar and floated against as undisclosed basket of currencies of Jan 8, 1992 the rupee parity stood Rs. 9.90 to a dollar.The main motives for practicing currency devaluation are as follow:It stimulates exports of commodities.
It restricts important demand for goods and services.It helps in creating a favorable balance and services.

Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieve certain economic objectives. During the great depression of 1930, devaluation was carried by most countries of the world with the objectives of;
Correcting the over-valuation of all the currencies;Embarking upon an anti-deflationary pro gramme by monetary and fiscal expansion;
To encourage exports and shrink impost so that favorable balance of payment is achieved.

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