| |
Devaluation
is a reduction in the value of a currency with respect to other
monetary units. In common modern usage, it specifically implies
an 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.
In contrast, (currency) depreciation is most often used for the
unofficial decrease in the exchange rate in a floating exchange
rate system. The opposite of devaluation is called revaluation.
Depreciation and devaluation
are sometimes used interchangeably, but they always refer to values
in terms of other currencies. Inflation, on the other hand, refers
to the value of the currency in goods and services (related to its
purchasing power). |
| Extended stay in CA | Discount Hotel in Many | Book Hotel in Herts |
| Discount Hotel in Pollockpines | Economy Hotel in Canton | Reserve Hotel in SC |
Online
Resources: |
| Devaluation is most often used in situations where a currency has a defined value relative to the baseline. Historically, early currencies were typically coins stamped from gold or silver by an issuing authority which certified the weight and purity of the precious metal. A government in need of money and short on precious metal might abruptly lower the weight or purity of the coins without announcing this, or else decree that the new coins had equal value to the old, thus devaluing the currency. This gave rise to Copernicus-Gresham's Law, which stated that "bad money drives out good", i.e., if pure gold coins and false coins are decreed to have equal value, people will use the false coins for currency and hide the good coins or melt them down into gold. Later, paper currencies were issued, and governments decreed them to be redeemable for gold or silver (a gold standard). Again, a government short on gold or silver might devalue by abruptly decreeing a reduction in the currency's redemption value, reducing the value of everyone's holdings. Naturally, a government which made a habit of doing this would lead its citizens to hold gold or silver in place of the government's notes, so such governments would often outlaw private hoarding of precious metal in order to prevent Gresham's Law from taking effect. |