A deliberate downward movement in the value of a country’s currency relative to the exchange rate at which it was previously set.

Devaluation is used as a monitory policy tool by governments of countries that have fixed exchange rates. It is commonly used to combat a trade imbalance; devaluation reduces the cost of a country’s exports, which makes those exports more competitive in the global market.

On the flip side, devaluation increases the price of imports which can lead to higher domestic GDP and inflation.

Back to Glossary