This means that the country’s products and services are likely to be sold at lower prices in foreign markets, making them more competitive.
Devaluation usually takes place when a government notices regular capital outflows (or capital flight) from a country, or if there is a significant trade deficit (where the total value of imports outweighs the total value of exports).
For example, in 2015, the People’s Bank of China (PBOC) devalued its currency by changing the market mechanism for fixing the yuan against the dollar. This made the yuan weaker and Chinese exports cheaper.
Due to this devaluation, there were fears around the world that other governments might seek to protect their export markets and also devalue their currencies, possibly starting a currency war.
Currency Devaluation vs. Currency Depreciation
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