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Devaluation of Currency

In: Business and Management

Submitted By rawn
Words 1357
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Devaluation in modern monetary policy is a reduction in the value of money with a respect to those goods, services or other monetary units with which that currency can be exchanged. ‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. There many reasons for devaluation, and but most have severe consequences that do more harm than good.

One of the main reasons a country devalues its currency is to increase its ability to bring in production from the outside and boost its own labor and development. When outside currencies are much stronger, a country can attract international business with cheaper production and labor costs by having a lower valued currency.
Alternatively, a country may want to recover its currency from overseas holders. By devaluing the currency it becomes worth less and cheaper to buy back. They country can then re-inflate the value again over time to bring it back to its original state, however it’s no longer sitting overseas.
Finally, a country may want to devalue its currency to pay off international debt. If its original loans were made in the same currency, the country could devalue the monetary value by printing more to then pay off the loan faster. This approach gets the borrow

The fastest way to devalue a currency is through inflation. When inflation occurs, it takes more currency to buy the same product or service. The value of the currency unit becomes less relative to goods and prices people charge. For a government, normally inflation is something it doesn’t want because it can destabilize the local market. However, if the country begins to print more currency, it makes more units available. In doing so, more currency is available on the market based on the…...

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