Devaluation is a measure that a government may take to reduce the value of its currency in terms of foreign currencies. It is used under certain conditions when a country has a pegged exchange rate–that is, when it specifies the value of its currency in terms of the currencies of other nations. Such conditions include a deficit in the country’s balance of payments and insufficient international reserves to support its exchange rate. A balance of payments is a record of a country’s business transactions with other countries and includes exports and imports of goods and services. The goal of devaluation is to improve a country’s balance of payments by making exported goods cheaper to foreigners and imported goods more expensive to domestic residents.
See also Balance of payments .
