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Revaluation is a change in a
price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for one unit of goods or services. A price is influenced by production costs, supply of the desired item, and demand for the pr ...
of a
good 175px, In many religions, angels are considered to be good beings. In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite ...
or product, or especially of a
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins. ...
, in which case it is specifically an official rise of the value of the currency in relation to a foreign currency in a
fixed exchange rate A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another ...
system. In contrast, a
devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national currenc ...
is an official ''reduction'' in the value of the currency. Under
floating exchange rate ''De facto'' exchange-rate arrangements in 2013 as classified by the International Monetary Fund. In macroeconomics and economic policy, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange ...
s, a rise in a currency's value is an appreciation. Altering the face value of a currency without changing its purchasing power is a
redenomination Redenomination is the process of changing the face value of banknotes and coins in circulation. It may be done because inflation has made the currency unit so small that only large denominations of the currency are in circulation. In such cases the ...
, not a revaluation (this is typically accomplished by issuing a new currency with a different, usually lower, face value and a different, usually higher, exchange rate while leaving the old currency unchanged; then the new replaces the old). In a fixed exchange rate system, the
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a state or formal monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ...
maintains an officially announced
exchange rate#REDIRECT Exchange rate#REDIRECT Exchange rate {{Redirect category shell, 1= {{R from other capitalisation ...
{{Redirect category shell, 1= {{R from other capitalisation ...
by standing ready to buy or sell foreign currency at that rate. In general terms, revaluation of a currency is a calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline could in principle be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (specifically, its central bank) can alter the official value of the currency. For example, suppose a
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
has set 10 units of its currency equal to one
US dollar The United States dollar (symbol: ; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquial buck) is the official curren ...
. To revalue, the government might change the rate to 9.9 units per dollar. This would result in that currency being slightly more expensive to people buying that currency with U.S. dollars than previously and the US dollar costing slightly less to those buying it with foreign currency.


Causes

If the fixed value of a
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins. ...
is sufficiently low, the central bank will experience an inflow of foreign currency, because foreigners will find it inexpensive to acquire the local currency from the central bank and use it to purchase locally produced goods, and so they will do a lot of that. With foreign currency flowing into its store of reserves, in principle the central bank could maintain this situation indefinitely, and indeed domestic exporters will like this situation. However, the
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a state or formal monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ...
may experience political pressure from two sources to increase the value of the currency: Domestic consumers will complain that they find it expensive to acquire foreign currency with which to buy importable goods; and foreign governments, on behalf of foreign exporters, may urge such a revaluation to improve their countries' sale of exports.


Effects

A revaluation of the local currency to a higher value vis-a-vis other currencies will make it less expensive for local consumers to acquire the foreign funds with which to import foreign goods, so they will do more importing. Domestic producers, on the other hand, will be able to sell fewer export goods because foreign consumers will find it more expensive to obtain the local funds with which to pay for them; so the country will export less. Thus its
balance of trade The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance o ...
will move to a smaller surplus or to a deficit, and the central bank will experience a decrease in its net inflow of foreign currency to its reserves, or even a reversal to a net outflow.


See also

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Revaluation of fixed assets In finance, a revaluation of fixed assets is an action that may be required to accurately describe the true value of the capital goods a business owns. This should be distinguished from planned depreciation, where the recorded decline in value of a ...
*
Currency appreciation and depreciation Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained. Currency appreciation ...


References

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International macroeconomics {{JEL code, F4 Macroeconomics Macroeconomics ...