Revaluation
Candlefocus EditorWhen a country revalues its currency, it increases its official exchange rate relative to some reference point. The extent to which the official exchange rate is increased depends on the country’s central bank and on its foreign exchange policy objectives. Thus, a revaluation may be used to strengthen the currency and make a country more competitive in the international market. It may also be used to boost the export of the currency.
In addition, a government’s revaluation of its currency can also signify that the country is attempting to stabilize its exchange rate. Revaluations are also used to move toward a more flexible exchange rate system, allowing the currency to react to market developments.
Revaluations may also signal that a country’s economic policies have improved and that its foreign reserves are providing further protection against economic and financial volatility.
Revaluing a currency is no small matter. When done, it often causes the currency's trading rate to rise or fall. It can also have a dramatic impact on the country’s economy and its international balance of payments. It can also significantly increase inflation and disrupt the normal functioning of markets. Moreover, the process can be difficult to manage and the full implications of a revaluation may not be known until some time afterward.
Overall, revaluations are a tricky but necessary process for countries to maintain a healthy economy and respond to global market developments. They must be well-planned and executed in order to ensure that the process does not cause any undue economic disruption.