Legal Definitions - devaluation

Devaluation refers to the official reduction in the value of a country's currency relative to other currencies. This decision is typically made by a government or central bank to achieve specific economic goals, such as making exports more competitive or reducing a trade deficit.

• Boosting Exports: Imagine the nation of Veridia, which produces high-quality textiles. If Veridia's central bank decides to devalue the "Veridian Dollar" against the US Dollar, it means that one US Dollar can now purchase more Veridian Dollars than before. Consequently, Veridian textiles become cheaper for American buyers, potentially leading to an increase in Veridia's textile exports to the United States because the cost in US Dollars has effectively decreased.

• Addressing a Trade Imbalance: The country of Aethelgard has been importing significantly more goods than it exports, leading to a persistent trade deficit. To make its domestically produced goods more attractive to international buyers and to discourage its citizens from buying expensive imports, the Aethelgard government might officially devalue its currency, the "Aethelmark," against major trading currencies like the Euro. This action makes Aethelgard's exports cheaper for European consumers and makes European imports more expensive for Aethelgard citizens, helping to rebalance trade by encouraging exports and discouraging imports.