What is Devaluation?



What is Devaluation?
Devaluation is the reduction of the foreign purchasing power of the national currency of the country that provides balance of payments in fixed exchange rate systems with a governmental decision. In other words, devaluation is the depreciation of the official currency of a state against other currencies. In this way, the prices of domestic goods are reduced while imports are expensive.



Devaluation in history: The devaluation in ancient Greece and Rome was achieved by reducing the amount of money represented by money. Increasing the amount of coins produced from a certain amount of gold and silver resulted in a lowering of the value of money. In the nineteenth century inflation, which was the result of increasing the amount of paper money, caused the value of money to decline by eliminating the increase in domestic prices and the ability to bond under the banknotes. Thus, the amount of gold that is accepted as the counterpart of the national currency has been reduced and the exchange rates have been adjusted accordingly.




Today devaluation: Today, since the coin is not a gold coin system, the value of the domestic currency is lowered and the rise in domestic prices is being carried out due to the foreign exchange income that can not be obtained. The domestic currency value is set on the basis of a certain foreign currency in order to promote the main export. However, in order for such an application to be successful, it is necessary to prevent the increase in domestic prices after the devaluation, not to restrict import restrictions by foreign countries.

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