What is the difference between revaluation and devaluation

In , the United States officially ended its adherence to the gold standard. Many other industrialized nations also switched from a system of fixed exchange rates to a system of floating rates. Since , exchange rates for most industrialized countries have floated, or fluctuated, according to the supply of and demand for different currencies in international markets.

An increase in the value of a currency is known as appreciation, and a decrease as depreciation. Some countries and some groups of countries, however, continue to use fixed exchange rates to help to achieve economic goals, such as price stability.

Under a fixed exchange rate system, only a decision by a country's government or monetary authority can alter the official value of the currency. Governments do, occasionally, take such measures, often in response to unusual market pressures.

Devaluation , the deliberate downward adjustment in the official exchange rate, reduces the currency's value; in contrast, a revaluation is an upward change in the currency's value. For example, suppose a government has set 10 units of its currency equal to one dollar. To devalue, it might announce that from now on 20 of its currency units will be equal to one dollar.

This would make its currency half as expensive to Americans, and the U. To revalue, the government might change the rate from 10 units to one dollar to five units to one dollar; this would make the currency twice as expensive to Americans, and the dollar half as costly at home. When a government devalues its currency, it is often because the interaction of market forces and policy decisions has made the currency's fixed exchange rate untenable.

In order to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves, often dollars, and be willing to spend them, to purchase all offers of its currency at the established exchange rate. For instance, a country whose 10 units of its currency is equivalent to one dollar may decide to devalue its currency by fixing 20 units to be equal to one dollar. By doing so, the home country would be half as expensive as the dollar.

Countries often use currency devaluation for economic policies. Lowering of the home currencies as compared to foreign currencies can improve exports, shrink trade deficits, and reduce a country's debt burden. When the local currency is cheaper than the foreign currency, exports will be encouraged and imports discouraged. This is because foreign countries will find the prices of goods cheaper in the devaluing country.

Caution should be exercised, however, to avoid extensive exports as this could cause an offset to the expected demand and supply which could increase the prices of goods and normalize the devaluation effect. Devaluation helps solve the effects of trade deficit since it will cause a balance of payments since the exports will be higher than the imports.

If a government has sovereign debts to pay on a regular basis, and the payment of this debt is fixed, maintaining a weaker currency makes the debt less expensive over time. The same should also be done with caution as countries might resort to a race to the bottom war nullifying the effect of devaluing. An increase in demand for exported goods can lead to inflation. The exchange rate of the currency changes on daily basis as per the demand and supply of that currency with respect to foreign currencies.

A currency depreciates with respect to foreign currency when the supply of currency in the market increases while its demand falls. Both devaluation and depreciation lead to the decline in the value of domestic currency.

However, there are certain differences between them. Revaluation refers to an upward adjustment to the country's official exchange rate the relative to either price of gold or any other foreign currency. Revaluation increases the value of the domestic currency with respect to the foreign currency. Revaluation is a feature of the fixed exchange rate regime, where the exchange rate is determined by the central bank or the government. Revaluation is opposite to devaluation, which is a downward adjustment.

Currency appreciation refers to the increase in the value of one currency with respect to other foreign currencies. Currency appreciation is the unofficial increase in the value of any currency.

It is a feature associated with floating or managed floating exchange rate regimes. Appreciation of a currency takes place when the supply of the currency is lesser than its demand in the foreign exchange market. Both appreciation and revaluation have similar impacts but they have some differences.

Appreciation of a currency associated with a floating or managed floating exchange rate system. Whereas revaluation of a currency is associated with the fixed exchange rate regime. The exchange rate of Indian rupee has changed a lot since independence.