DEVALUATION AND DEPRECIATION OF CURRENCY

DEVALUATION AND DEPRECIATION OF CURRENCY

Definition: Devaluation may be defined as the official reduction of the exchange value of national currency in relation to the currencies of other countries. In other words, it is a reduction in the value of the country’s currency in terms of other currencies of the world. It can also be referred to as a fall in the exchange value of a country’s currency in relation to the currencies of other countries.

Depreciation: Depreciation of currency may be defined as the reduction of the exchange value of a national currency in relation to other currencies as a result of changes in demand and supply in the foreign exchange market.

Effects of devaluation of currency

• Devaluation of currency makes exports cheaper as the prices of goods

produced locally fall.

•  Imports become expensive: When a country devalued her currency, her citizens spend more in purchasing of commodities from other countries.
• Reduction in imports: It becomes more expensive to import goods and services into a country that devalued its currency. Fewer goods and services are therefore imported.
• Increase in export: There will be an increase tendency to export goods and services when a country devalued its currency. Devaluation encourages people to export because of its cheapness.
• Balance of payments improvements: Improvement on balance of payments is achieved because of reduction in imports and increase in exports
• Employment opportunities: Devaluation causes an increase in the number of industries and consequently creates more jobs for people.
• Increase in number of industries: As a result of devaluation, export is encouraged and becomes cheaper and this leads to expansion in the number of industries.

CONDITIONS IN WHICH DEVALUATION CAN IMPROVE A COUNTRY’S BALANCE OF
PAYMENTS                                        

Devaluation will improve the balance of payment position of a country under the following conditions:

• The elasticity of demand for import, must be elastic. Increase in prices of imports, as result of devaluation will reduce the demand for import.
• The country’s exports must have elastic demand in other countries.
• Other nations must not devalue their own countries.
• For devaluation to be effective, there must be no increase in wages and others incomes.

161. LIVER FLUKE
162. ECTO PARASITES
163. TICK
check out these recent posts

1. loans for businesses
2. how to establish enterprises
3. what is a firm
4. price equilibrium
5. scale of preference
6. concept of economics
7. economic tools for nation building
8. budgeting
9. factors affecting the expansion of industries

mineral resources and the mining industries