what is devaluation 
devaluation is the deliberate downward adjustment of the value of a country s money relative to another currency or standard it is a monetary policy tool used by countries with a fixed exchange rate or semi fixed exchange rate investopedia lara antaldevaluation strategyby devaluing its currency a country makes its money cheaper and boosts exports rendering them more competitive in the global market conversely foreign products become more expensive so the demand for imports falls governments use devaluation to combat a trade imbalance and have exports exceed imports as exports increase and imports decrease there is typically a better balance of payments as the trade deficit shrinks a country that devalues its currency can reduce its deficit because of the greater demand for its less expensive exports devaluation is the opposite of revaluation which refers to the readjustment of a currency s exchange rate consequences of devaluationwhile devaluing a currency may be an option it can have negative consequences currency warsthere has been historical conflict between countries such as china and the united states over the valuation of their currencies a monetary policy that stresses devaluation allows a country to remain competitive in the global trading marketplace devaluation also encourages investment drawing in foreign investors to cheaper assets in august 2023 fitch ratings downgraded the united states long term foreign currency issuer default rating idr to aa from aaa the downgrade reflects the expected fiscal deterioration over the next three years a high and growing general government debt burden and the erosion of governance relative to aa and aaa peers over the last two decades resulting in repeated debt limit standoffs and untimely resolutions 1the omnibus trade and competitiveness act of 1988 requires the u s secretary of the treasury to analyze the exchange rate policies of other countries and determine if they are manipulating the exchange rate between their currency and the united states dollar in 2019 secretary mnuchin found that china devalued its currency to gain an unfair competitive advantage in international trade 2however in 2023 following several years of trade woes caused by the covid 19 pandemic china s central bank hopes to keep the chinese yuan from weakening too quickly against the u s dollar as imports are becoming more expensive relative to its exports 3 the offshore yuan traded around 7 15 per dollar in may 2023 and chinese exports fell more than expected reflecting the country s slow recovery path 4