Definition of Devaluation

Devaluation is the decrease in the nominal value of a current currency against another foreign currency and may be due to different causes, such as the lack of demand for local currency, or the increase in demand for foreign currency. In accounting terms, the currency devaluation is produced by the loss of the quality, the quantity, the outside or the value of an asset. Let us remember at this point that the increase in the value of an asset is called revalorización.

The currencies of countries represent a value directly related to the wealth of a country. With this, a state that issues more coins or gives them a higher value than it can support with its wealth, will have to carry out some adjustments in the value of its currency.

Among the most important consequences of a currency devaluation are the following:

  • Increase in Inflation
  • Increase in utility rates
  • Loss of real wages
  • Erosion of savings in local currency

However, the devaluation of the currency can also bring advantages for the country, such as an increase in domestic consumption of national goods and products, an increase in international tourism, since foreigners find the money of that currency more attractive. country, and the competitiveness of exports rises compared to those made with higher value currency.

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