devaluation

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devaluation,

decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of paymentsbalance of payments,
balance between all payments out of a country within a given period and all payments into the country, an outgrowth of the mercantilist theory of balance of trade.
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. Although devaluation occurs in terms of all other currencies, it is best illustrated in the case of only one other currency. For example, if the United States is losing money in its trade with Japan, a decision may be made to devalue the U.S. dollar by 10%. Whereas previously one dollar may have been worth about 100 yen, a 10% devaluation causes it to be worth only about 90 yen. Such a move causes Japanese products to become more expensive for Americans and U.S. products to become cheaper for the Japanese. The net result of such a devaluation is that U.S. exports tend to increase and imports tend to decrease, thus helping to reverse the balance of payments deficit.

Devaluation

 

an official lowering of the value of the monetary unit.

A monetary reform is usually accompanied by devaluation, which is implemented in capitalistic or feudal countries by a legislative measure to reduce the gold content of the monetary unit or to lower the rate of exchange of paper money in relation to gold or foreign money.

Devaluation at the present time is evidence of the crisis of the capitalist foreign-exchange system (as one of the manifestations of the general crisis of capitalism); it is a consequence of the loss of value of money and of a significant and prolonged balance of payments deficit. Devaluation encourages export but increases the foreign indebtedness of a state and causes a rise in prices of imported goods. By the same token, devaluation intensifies the political and economic contradictions of capitalism. The burden of devaluation, through the rise in prices and tariffs, is carried basically by the working masses; this in turn lowers living standards and intensifies the class struggle.

Before the general crisis of the capitalist system, devaluation to a greater or lesser degree contributed to the stabilization of the monetary system because it was (directly or indirectly) accompanied by a restoration of the exchange of the symbols of value for gold or silver (in coins or in bullion for the use of private individuals). Devaluation was implemented openly or in a concealed form. In an open devaluation, money was exchanged at a lower rate (for example, in Russia in 1839, 1 silver ruble equaled 3 rubles 50 kopeks in assignats); in a concealed devaluation, the exchange of money was effected at the nominal value but with a reduction of its gold or silver content. Thus, in 1897 in Russia, gold money was exchanged for bank notes using the ratio 1:1, but the gold content of the ruble was reduced by one-third, that is, from 26.1 to 17.4 doli of pure gold (1 dolia = 0.044435 g).

After World War I (1914-18), a number of devaluations were effected in capitalist countries (such as the open devaluation in Germany in 1924 and a concealed devaluation in France in 1928). Since the 1930’s devaluations, as a rule, have not brought stabilization to the monetary system and have not restored the exchange of bank notes for gold by private individuals; they have been carried out basically by means of reducing the official rate of exchange of bank notes. The first mass devaluation of capitalist currencies occurred at the end of 1949, when Great Britain and 36 other countries reduced the ratio of exchange of their currencies to the American dollar by from 12 to 30 percent and more. The second mass devaluation was effected in 1967 by Great Britain and by 25 other countries (the reduction of the rate of exchange amounted to 5 to 25 percent). In August 1969 the French franc was devalued by 11.11 percent. A total of more than 400 devaluations took place from 1949 to 1971 in capitalist states (more than once in some countries).

With the intensified world monetary crisis, the American dollar, which is the key currency of the capitalist world, was devalued by 7.89 percent in December 1971. Devaluation of the American dollar entailed devaluation of the currencies of many capitalist countries, but at the same time the currencies of the major capitalist countries—the main trade competitors of the USA-were revaluated. Devaluation often occurs in developing countries, especially those of Latin America. Thus, from 1965 to 1971 there were more than ten devaluations in Argentina and about ten in Brazil.

V. A. DROZDOV

References in periodicals archive ?
According to an official at the treasury sector in a bank operating in the local market, only those customers will be affected by the consequences of devaluating or floating the pound, as the contracts between banks and their customers state that if the customer has any open currency positions, only he/she is committed to paying the dollar amounts owed to banks from his/her own resources.
under criticism from major trading partners, such as the US, of devaluating
It has also said the market conditions had been very different in 2005 and further investigations found the building had been in a worse condition than first feared, further devaluating the site.
This account also puts into plain view the aims of the 'super power' regarding globalization and the liberalization of trade exchanges in its spheres of influence: the main objective is, whether by devaluating or floating their currencies, to dominate the world economy.
The Generic Pharmaceutical Association (GPhA) calls a Pharmaceutical Research and Manufacturers of America (PhRMA) study on authorized generics a "disingenuous" attempt at devaluating the 180-day exclusivity period, a time frame GPhA says is an important incentive for generic drug companies to challenge what they see as questionable patents.
What had started as the promotion of a process of modernization led to an impasse with the separation between marriage as a legal institution and cultural practice on the one hand, and the devaluating religious understanding of marriage on the other.
Finance Minister Kiichi Miyazawa on Tuesday cautioned China against devaluating the yuan as a method of securing the competitiveness its exporters.
This effectively creates 'virtual' shares that are not backed up by real shares, thus artificially inflating ownership and devaluating the price of the stock.
The informal market is awaiting any clues from the CBE as to whether it will take a decision soon--either floating the pound or devaluating it against the US dollar--amid very cautious trading on the dollar in that market.
US, of devaluating the yuan to earn artificial price advantages.
The official said the statement will put subtle pressure on China to refrain from devaluating the yuan, and on Japan to speed up efforts to reinvigorate its economy.
This effectively creates shares that are not backed up by real shares, thus artificially inflating ownership and devaluating the price of the stock.