Currency Devaluation Vs Currency Depreciation
We Know that , currency of own country is called 'home currency' and currency of other country is called 'foreign currency'.
When home country tries to expand its market of exports they deliberately puts the value of their currency down or make their value of currency fall . This is called currency devaluation. It is making home currency weak in respect to foreign currency. This is done strategically by the nations central bank /government. It is done to maintain trade balances in the country, for short term.
However, when market forces actively participate and makes the value of currency value go down due to demand and supply of home currency in foreign market, it is called currency depreciation. It is home currency going weak due to dynamic forces of the market. It depends upon the economy of the nation, political instability and market sentiments towards the currency.
lets take an example of our two neighboring country to understand this :
The main economy of China relies upon export. China government struggling for the exports, had product to get exported in international market. Due to currency devaluation , it has to get more quantity of money (yuan) in respect to dollars. This made availability of more home currency to manufacturers, motivating them to produce more in home country.
for e.g. On August 11, 2015 China devaluated its currency against US dollar by 2%. It means making home currency weak.
Similarly, for understanding currency depreciation ,
lets take an example considering the value of dollar and Indian rupee :
Say,
on 2020 , 1$ = Rs. 75.54
on 2023, 1$ =Rs. 82.18
on 2025, 1$=Rs 88.77
This clearly shows that the value of dollar is getting strong in compared to Indian currency. As, to purchase a 1$ product you have to pay Rs. 75.54 in the year 2020, Rs 82.18 in year 2023 and Rs 88.77 now. Here, the value of Indian rupee gets low and low. This reduction of value of currency is called currency depreciation. It do not mean making, rather means becoming home currency weak due to market forces.
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