Devaluation
A deliberate government decision to lower a currency's fixed exchange rate, making exports cheaper.
What is Devaluation?
Devaluation is a deliberate downward adjustment of a country's official exchange rate under a fixed or managed exchange rate regime — meaning the government or central bank intentionally lowers the value of the domestic currency relative to a foreign currency or gold. Devaluation makes a country's exports cheaper and more competitive internationally while making imports more expensive, which can help reduce a trade deficit. It differs from depreciation, which refers to a market-driven decline in a floating currency's value. Devaluation carries risks including import-driven inflation, loss of investor confidence, and potential for retaliation or competitive devaluations by trading partners.
Example
In August 2015, China's People's Bank of China devalued the renminbi by approximately 1.9% against the US dollar — the largest single-day move in two decades — as part of a shift toward a more market-oriented exchange rate mechanism. The move triggered global financial market volatility as investors feared further devaluations and a slowdown in the Chinese economy.