Understanding Devaluation: Definition, Causes, and Effects

Devaluation is a decrease in the value of a currency in relation to other currencies. It means that the currency becomes less valuable or weaker compared to other currencies, so goods and services become more expensive for people using that currency.

For example, if the US dollar (USD) devalues against the euro (EUR), it means that one USD is now worth fewer euros than it was before. This can make exports from the US more expensive for European countries, which could potentially lead to a decrease in demand and a negative impact on the US economy.

Devaluation can be intentional or unintentional. Intentional devaluation is when a government deliberately lowers the value of its currency to boost exports and stimulate economic growth. Unintentional devaluation occurs when a currency loses value due to economic or political factors beyond the control of the government, such as a trade deficit or geopolitical tensions.