 |
Business | Industries | Finance | Tax |
| Index: > A B C D E F G H I J K L M N O P Q R S T U V W X Y Z |
|
|||||
The term is most often used when a currency has a defined value relative to the baseline. Historically, early currencies were typically coins stamped from gold or silver by an issuing authority which certified the weight and purity of the precious metal. A government in need of money and short on precious metal might abruptly lower the weight or purity of the coins without announcing this, or else decree that the new coins had equal value to the old, thus devaluing the currency. This gave rise to Gresham's Law, which stated that "bad money drives out good", i.e., if pure gold coins and false coins are decreed to have equal value, people will use the false coins for currency and hide the good coins or melt them down into gold.
Later, paper currencies were issued, and governments decreed them to be redeemable for gold or silver (a gold standard). Again, a government short on gold or silver might devalue by abruptly decreeing a reduction in the currency's redemption value, reducing the value of everyone's holdings. Naturally, a government which made a habit of doing this would lead its citizens to hold gold or silver in place of the government's notes, so such governments would often outlaw private hoarding of precious metal in order to prevent Gresham's Law from taking effect.
Present day currencies are usually fiat currencies with insignificant inherent value and no redemption policy. However, many countries maintain a fixed exchange rate policy against the United States dollar or other major currencies in order to provide investors and exporters with a sense of security. These fixed rates are usually maintained either by legally enforced capital controls or by maintaining a large reserve of foreign currency in order to intervene in the currency markets. For these currencies, a capital outflow or a persistent trade deficit may lead them to lower or abandon their fixed rate policy, resulting in a devaluation. In an open market, the perception that a devaluation may be imminent may lead speculators to sell the currency, increasing pressure on the issuing country to make an actual devaluation. An unusual example of a devaluation might be the 19851985 is a common year starting on Tuesday. Events January events January 1 Creation of the Internet's Domain Name System. January 17 British Telecom annouces they are going to abolish the famous red telephone boxes. January 23 A debate in the House of Lor Plaza AccordJapanese economy The Plaza Accord was an agreement signed on September 22, 1985 to make the Japanese yen stronger, and the dollar cheaper. It was signed in the Plaza Hotel, in the city of New York. France, Germany, Japan, the United States and the United, in which the United StatesThe United States of America also referred to as the United States U. America ¹ or the States is a federal republic in central North America, stretching from the Atlantic in the east to the Pacific Ocean in the west. It shares land borders with Canada in lowered its free floating currency dramatically by negotiating with its trading partners to stop them from artificially lowering their own currencies for competitiveness reasons.
Generally, a steady process of inflation is not considered a devaluation, although if a currency has a high level of inflation, its value will naturally fall against gold or foreign currencies. Especially where a country deliberately prints money (a usual cause of hyperinflationbillion) Serbian dinar banknote circa 1993, the largest nominal value ever officially printed in Serbia, the final result of hyperinflation. Photo courtesy of National bank of Serbia In economics, hyperinflation is inflation which is "out of control", a c) to cover a persistent budget deficit without borrowing, this may be considered a devaluation.
In some cases, a country may revalue its currency higher (the opposite of devaluation) in response to positive economic conditions, to lower inflation, or to please investors and trading partners. This would imply that existing currency increased in value, as opposed to the case where a country issues a new currency to replace an old currency that had declined excessively in value. (such as RomaniaThe Romanian leu (plural: lei ISO 4217 code ROL) is the national currency of Romania. One leu is subdivided into 100 bani (singular: ban . The leu was established in 1880, following the founding of the National Bank of Romania. Before 1940, when Moldova w in 2005, Russia1998 Russian Federation one rouble coin. Heads (right) and tails (left) 1898 Russian Empire one rouble bill. 1898 Russian Empire one rouble bill. The ruble ( Russian French-derived transliteration rouble is the name of the currency of the Russian Federati in 1997, or GermanyThe Federal Republic of Germany ( German: Bundesrepublik Deutschland is one of the world's leading industrialized countries, located in the middle of the European Union. It is bordered to the north by the North Sea, Denmark and the Baltic Sea, to the east in 1923)
See also inflation
| Politics | Business | Finance |
 |
 |
 |
|