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What is devaluation?

Devaluation

Devaluation is monetary policy tool used by governments to reduce the value of a country's currency in relation to another currency, group of currencies or standard. Governments can use this when their country has a fixed exchange rate or a semi-fixed exchange rate. They do this to improve their trading position in the world.

Where have you heard about devaluation?

The Chinese government devalued their currency in 2015 by changing the market mechanism for fixing the yuan against the dollar. This made the yuan weaker and Chinese exports cheaper. As a result, there were fears around the world that other governments might seek to protect their export markets and so devalue their currencies, possibly causing inflation.

What you need to know about devaluation.

Devaluation is a deliberate action and should not be confused with depreciation, which is a fall in a currency's value as a result of non-governmental activities.

Find out more about devaluation.

Read our definitions of monetary policy, exports and imports to see how they are connected to devaluation.

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