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Money Supply and Inflation

What is the m...

Question

What is the meaning of devaluation of money?

A

Decrease in the internal value of money

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B

Decrease in the external value of money

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C

Decrease in both internal and external values of money

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D

The government takes back currency notes of any denomination

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Solution

The correct option is A Decrease in the external value of money
When the country follows a fixed exchange rate regime the government constantly has to revalue and devalue the currency in order to maintain the pegged exchange rate. When there is upwards market pressure on the currency to appreciate, the central bank will artificially devalue the currency by buying up foreign reserves.

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