(economics) The lowering of the value of a national currency in terms of the currency of another nation. Devaluation tends to reduce domestic demand for imports in a country by raising their prices in terms of the devalued currency and to raise foreign demand for the country’s exports by reducing their prices in terms of foreign currencies. Devaluation can therefore help to correct a balance of payments deficit and sometimes provide a short-term basis for economic adjustment of a national economy.
In a fixed exchange rate situation, devaluation occurs as the result of an administrative action taken by a government to reduce the value of its domestic currency in terms of gold or foreign monies.
In a free exchange rate situation, devaluation occurs as a result of the action of the foreign exchange market where the value of the domestic currency drops by market forces against a specific unit of foreign currency.

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