Devaluation refers to the lowering of the value of a country’s currency in relation to other currencies. This can occur for a variety of reasons, such as economic downturns, inflation, or political instability. When a currency is devalued, it means that it now takes more units of that currency to purchase goods and services from other countries.
Devaluation can have both positive and negative effects on a country’s economy. On one hand, it can make exports cheaper and more competitive on the global market, which can help boost a country’s economy by increasing its trade surplus. Additionally, devaluation can also attract foreign investment, as assets become cheaper for foreign investors.
However, devaluation also has its downsides. It can lead to higher inflation rates, as imports become more expensive and can drive up the cost of living for consumers. Devaluation can also harm a country’s credit rating, as it signals instability in the economy. Overall, devaluation is a complex economic phenomenon that can have wide-ranging impacts on a country’s economy and must be carefully managed by policymakers.