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Differentiate between Devaluation and Revaluation. |
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Answer» Both Revaluation and Devaluation are used to adjust a country’s Balance of Payment. Devaluation is a process of lowering country’s currency in terms of foriegn currency. It simply means lowering the external value of country’s currency. Government adopts this measure to reduce the Trade Deficit. This makes imports costlier and exports cheaper. In this way, government, through devaluation, tries to correct disequilibrium in Balance of Payment. Revaluation is a policy instrument to adjust Balance of Payment. Through revaluation, value of country’s currency is increased in terms of foriegn currency. This makes exports of the country relatively costlier and imports cheaper and this reduces the surplus foreign trade. Devaluation and revaluation both are adopted under fixed monetary exchange rate system. If revaluation is done under flexible or floating exchange rate system, then it is called appreciation money. |
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