Devaluation of a currency means

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Q: 40 (IAS/1994)
Devaluation of a currency means

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,442,88,442,17,49,22

keywords: 

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Devaluation of a currency generally refers to a deliberate reduction in the value of a currency relative to other major internationally traded currencies. It is a policy decision taken by a country`s government or central bank to decrease the exchange rate of its currency in relation to other currencies.

The primary objective of devaluation is to make the country`s exports more competitive and stimulate economic growth. By reducing the value of its currency, a country can lower the prices of its goods and services in international markets, which may increase demand and boost export volumes.

Devaluation is typically carried out by the government or central bank through various measures, such as reducing interest rates, intervening in foreign exchange markets, or adjusting currency exchange rate regimes.

It`s important to note that devaluation is different from a freely floating exchange rate system where the currency`s value is determined by market forces. In devaluation, the government or central bank actively intervenes to lower the value of the currency.