Causes Of Devaluation And Revaluation

[Tobi]

While devaluation is far more common than revaluation, both occur because the exchange rate has been fixed at an artificially low or high level. This makes it increasingly difficult for the central bank to defend the fixed rate, which in turn attracts the unwanted attention of currency speculators who waste little time in testing the resolve of the central bank to defend the fixed exchange rate. A central bank must have sufficient foreign exchange reserves to be willing to buy all the offered amounts of its currency at the fixed exchange rate. If these forex reserves are insufficient, the bank may have no option but to devalue the currency.

 

[kit_hung]

It is true that currency depreciation occurs more often than appreciation. Central banks often try to control the exchange rate, but market conditions are difficult to control, especially if the rate is set at a rate that is not in line with economic reality.

When foreign exchange reserves are insufficient, the central bank finds itself unable to buy its currency at the set rate. That is when currency traders begin to test the central bank’s power, and the situation can quickly deteriorate.

 

[Augusta]

Revaluation include changes in international interest rates, major economic events, revaluation increases a currency's value, it has complex implications for international trade balances