What is devaluation of Domestic Currency Class 12
looking for what is the devaluation of domestic currency as per the syllabus of class 12.
This topic is concerned with the Foreign Exchange rate chapter of macroeconomics.
Let’s have an example to understand it.
What do you mean a fall in the price of domestic currency.
Whenever a country has to pay more units of domestic currency to obtain one unit of foreign currency, It refers to a fall in the value of the domestic currency in terms of foreign currency.
Suppose the price of one US dollar in India rises from ₹100 to ₹150. earlier a 100 rupees fetching 1 us dollar.
Now, after rising in its price we get 1 dollar for ₹ 150.
As we have to pay more to get one US dollar now. the value of the rupee, in terms of the US dollar, has fallen.
This phenomenon can be stated in the following ways.
- Domestic currency has depreciated
- Foreign currency has appreciated
- The value of domestic currency has fallen with respect to foreign currency
- The value of foreign currency has risen with respect to domestic currency.
But What is Devaluation. Let’s understand it.
What do you mean by devaluation of Domestic Currency
When the government intentionally depreciates its currency with respect to foreign currency. It is called devaluation.
India, devalue its currency with respect to the dollar.
But why,
It’s done to give a boost to export of the country. When the currency is devalued in the foreign exchange market.
Exports become cheaper. In other words, you can say, purchasing by foreigners from the Indian market becomes cheaper.
The country does it to sell its surplus production into the international market.
It increases the consistent requirement of excess production. Employment generates and the National income of a country rises.
Definition of Devaluation of Domestic Currency
The deliberate raising of the price of foreign currency in terms of domestic currency by the government is terms as devaluation of the domestic currency.
