What happens when a currency is devalued?

When the currency is devalued, imports get discouraged because imported goods get more expensive for domestic consumers. When the currency is devalued, the exports receive a boost because the exported goods become relatively cheaper for foreign consumers. You can read about the Balance of Payment Crisis, 1991 – Causes and Measures to Control it in the given link.

The above effect takes place because the devaluation makes the domestic currency relatively cheaper when compared with the foreign currencies.

Further readings:

  1. Forex Reserves – Meaning, Importance, Advantages (Notes for UPSC IAS exam)
  2. New Economic Policy of 1991 – Objectives, Liberalisation, Privatisation, Globalisation

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