Definition
Appreciation vs Depreciation
Appreciation is a market-driven rise in a currency's value and depreciation a fall, both occurring under a floating regime, as opposed to deliberate revaluation or devaluation.
When USDINR falls from 84 to 82, the rupee has appreciated because each rupee buys more dollars; when it rises, the rupee has depreciated. These are market outcomes under India's managed-float regime, driven by flows, trade balances and rates.
Depreciation is distinct from devaluation, which is a deliberate downward reset of a pegged currency. The rupee floats with RBI smoothing, so it appreciates and depreciates rather than being officially devalued.
Related terms
- USDINRUSDINR is the exchange rate of the US dollar against the Indian rupee, the most-watched currency pair in India and a key barometer of capital flows and import costs.
- Devaluation vs RevaluationDevaluation is an official lowering of a fixed or pegged currency's value, and revaluation an official raising; both are deliberate government acts, unlike market depreciation or appreciation.
- Managed FloatA managed float, or dirty float, is a regime where the exchange rate is largely market-determined but the central bank intervenes to curb excessive volatility.
- Real Effective Exchange Rate (REER)REER is a trade-weighted index of a currency against a basket of partner currencies, adjusted for inflation differences, measuring true competitiveness rather than a single bilateral rate.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.