Devaluation is a process of reducing the value of a nation’s currency in relation to other currencies. It is a deliberate process of making a nation’s currency weaker against other currencies.
It is often adopted when a country is having disequilibrium in the balance of payment. Devaluation has the tendency of making export cheaper and imports more costly. It is often used with a view of increasing the volume of exports thereby increasing foreign exchange earnings.
Effect of devaluation
1. Reduction in prices of export
2. Increases in prices of import
3. Increase in export and decrease in level of import
4. Improvement in balance of payment
5. Increase in level of employment