Revaluation
What is revaluation?
Revaluation (English - value) - a method of regulating the value of a national currency in the public interest, which involves raising its exchange rate in relation to the currencies of other countries, gold, baskets of currencies and other international units of account.
The reverse method of regulating the exchange rate of the national currency is called devaluation.
Why do we need a revaluation of the national currency?
Most often, the revaluation of the national currency is resorted to when there is a need to reduce inflationary pressure, to halt the growth of the surplus balance of payments, or to buy cheaper foreign currency. The latter is characteristic of import-oriented countries, where more affordable foreign goods can be bought for their expensive national currency.
The main purpose of devaluation - reduce the exchange rate of the national currency, thereby supporting exporters who find it easier to sell competitive goods.
What are the reasons for revaluation?
The main reasons for revaluation are:
- inflation;
- the need to export domestic capital and import goods from abroad. It is necessary when it becomes impossible to export one's own goods (low competitiveness, high price).
What are the consequences of revaluation?
Revaluation of the national currency has both positive and negative consequences.
Positive effects of revaluation:
- a decrease in the rate of inflation;
- the pause in the growth of the surplus;
- decrease in prices for goods within the country's market due to increased competition and oversaturation of the market with imported goods;
- buyers of domestically produced goods remain in the domestic market.
The negative consequences of devaluation:
- увеличение цен экспортируемых товаров. Итог – национальные предприятия становятся неконкурентоспособными в других странах;
- reduction in the volume of investment in the national economy (investors do not benefit from the exchange rate);
- increase in the volume of imported products on the domestic market;
- reduction or stoppage of own production;
- a decrease in the flow of tourists, for whom traveling to the country becomes unprofitable (due to losses in currency exchange).
Examples of national currency revaluation
- In 1969 and 1971, in order to fight inflation, the FRG authorities carried out revaluation;
- 1971 - revaluation of the Japanese yen. The main goal was to equalize the trade balance between the U.S. and Japan. In 1998, the local currency strengthened within three days to 111 (from 136) dollars per yen;
- in 1971 and 1973 revaluation was carried out in Austria, Switzerland and the Netherlands;
- In 2005, the renminbi was revalued. The value of the national currency was increased by two percent. By early 2008, the yuan appreciated by 20% more.