devaluation

noun de·val·u·a·tion \ (ˌ)dē-ˌval-yə-ˈwā-shən , -yü-ˈā- \
Updated on: 16 Nov 2017

Definition of devaluation

1 : an official reduction in the exchange value of a currency by a lowering of its gold equivalency or its value relative to another currency
2 : a lessening especially of status or stature : decline

Recent Examples of devaluation from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'devaluation.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of devaluation

1914


Financial Definition of DEVALUATION

devaluation

What It Is

Devaluation refers to a decrease in a currency's value with respect to other currencies.

How It Works

A currency is considered devalued when it loses value relative to other currencies in the foreign exchange market. A currency's devaluation is the result of a nation's monetary policy.

A central bank can make the conscious effort to make its currency less valuable. If Country XYZ's currency is set at a fixed exchange rate of 2:1 to the U.S. dollar and, due to a weak economy, XYZ cannot afford to pay the interest rate on its debt outstanding, XYZ may devalue their currency. This means the central bank of XYZ will declare their fixed exchange rate to be 10:1 to the U.S. dollar. This makes their debt outstanding is now worth five times less. It's a very tricky maneuver with grave economic consequences.

Why It Matters

Whether deliberate or as a result of market climate, currency devaluation reduces the price of a country's domestic output. This has the potential to benefit the economy by helping to increase its export volume. Conversely, import volumes become stifled as the price of foreign-produced goods and services increases dramatically.

The opposite of devaluation is known as revaluation.

For a more thorough explanation of currency devaluation, how China manipulates its currency worth and the economic impact following Argentina's devaluation, please read this educational article: How Money Manipulation on the Other Side of the World Could Affect American Portfolios


Law Dictionary

devaluation

noun de·val·u·ation \ (ˌ)dē-ˌval-yə-ˈwā-shən \

legal Definition of devaluation

1 : an official reduction in the exchange value of a currency by a lowering of its gold equivalency or its value relative to another currency
2 : a lessening of the value of something (as an asset)
  • portfolio devaluation


Seen and Heard

What made you want to look up devaluation? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

food, provisions, or a tasty dish

Get Word of the Day daily email!

Test Your Vocabulary

Find the Cousins

  • a-large-tree-with-many-branches
  • Which pair shares a common word ancestor?
Spell It

Can you spell these 10 commonly misspelled words?

TAKE THE QUIZ
SCRABBLE® Sprint

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!