Devaluation Definition. Devaluation is a substantial drop in the value of a currency, relative to the price of gold or the currencies of other countries, or the deliberate downward adjustment of the official exchange rate, normally by official announcement of the central bank of the respective country. Currency devaluation occurs exclusively for fixed currencies, or for a currency that is pegged to another currency. Governments often devalue their own currencies to make their exports less expensive in foreign markets. However, the price of imports increases, thus discouraging their use, thereby leading to a reduction in the nation’s balance of payments. Alternatively, currency devaluations may also occur to reduce inflationary pressures caused by the peg as long as exporters also reduce domestic prices for their newly priced exported goods.
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