Devaluation

Devaluing a currency, i.e. making it less valuable, can only happen when the government, which controls that currency...decides to devalue it. So yeah, it’s kinda their call—when, and how much. Basically, devaluation happens when a country decreases the value of its currency against other currencies.

Why on earth would a country ever do this?

Usually, because it wants its goods to be less expensive abroad. When a currency is devalued, the home goods, i.e. the home country goods, are cheaper in other markets. This will usually lead to an overall increase in exports. When it comes to exports and imports though…where there’s a yin, there’s a yang.

There’s a counterbalance at play here. Imports become more expensive, and consumers at home likely shift away from foreign to purchase in-country goods. The result? Strength in domestic products. All of this might sound hunky-dory, but there are some potentially nasty side effects.

Local companies are getting a bit of a break, which might make them inefficient-slash-lazy-slash-sloppy-slash- lacking in competitive spirit. Plus, when a currency is devalued, each unit is worth less...which can lead to inflation. So yeah, that’s devaluation.

Making money…not worthless, but…worth less.