Devaluation

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.