Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025
Definition
Devaluation is the deliberate reduction in the value of a country's currency relative to another currency, group of currencies, or standard. This action is usually taken by the government or central bank to help correct trade imbalances.
The rate at which one currency can be exchanged for another currency, which can fluctuate due to market conditions and policy decisions.
Trade Balance: The difference between a country's exports and imports; a positive balance means a country exports more than it imports, while a negative balance indicates more imports than exports.
The general increase in prices and fall in the purchasing value of money; devaluation can sometimes lead to inflation if it increases the cost of imported goods and services