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Define Devaluation

Devaluation means decrease in the external value of a country’s currency as an aware policy measure adopted by the Government of a country. In another words, we make our currency less costly in terms of foreign currency. This builds our goods cheaper to foreign buyers and foreign goods costlier to our buyers. Therefore exports raise, imports fall and the gap in trade balance becomes much smaller. If a country suffers from continued deficit in its balance of payments (BOP), it might resort to devaluation of its currency with a view to encourage exports and limiting imports and therefore narrowing down or covering its trade gap and balance of payments (BOP) deficit. It occurs in Fixed Exchange Rate System.

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