Definition
Devaluation vs Revaluation
Devaluation 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.
India devalued the rupee sharply in 1966 and again in 1991 during the balance-of-payments crisis, when the currency was on a fixed/pegged basis. A devaluation makes exports cheaper and imports dearer overnight.
Since the 1990s reforms and the move to a market-determined rate, the rupee floats with RBI management, so it depreciates rather than being devalued. China, by contrast, has historically managed a tighter peg and occasionally revalued or devalued the yuan by official decision.
Related terms
- Appreciation vs DepreciationAppreciation 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.
- 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.
- Currency PegA currency peg fixes a currency's exchange rate to another currency or basket, requiring the central bank to buy or sell reserves to defend the chosen level.
- Balance of Payments (BoP)The balance of payments records all economic transactions between India and the rest of the world over a period, spanning trade, services, income and capital flows.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.