Devaluation 

Devaluation - depreciation of the national currency against foreign exchange rates.

Initially, the value of the currency of most countries was tied to gold (the gold standard), but in the second half of the 20th century, everything changed under the influence of various macroeconomic factors. Now the exchange rate of national currencies is increasingly tied to the US dollar or euro, which many states hold in reserve. The depreciation of the state currency against foreign exchange rates in the reserve, that is, the hardest currencies, is called devaluation.

The government is applying devaluation techniques to somehow affect the entire economy. For example, this directly affects oil prices. Or, if the devaluation comes with state support for producers within the country, then the growth in purchases of domestic goods is inevitable.

It is important to note that devaluation does not mean a crisis. This process is often carried out by states of different countries in order to adjust the current economic direction.

Despite the fact that inflation and devaluation are often equated and the fact that they have a connection with each other is different.

• During devaluation, the national currency depreciates in relation to foreign currency.
• With inflation, the purchasing power of the currency within the country decreases.

That is, during devaluation, one can observe an increase in the exchange rate at exchange points, and with inflation, an increase in prices for goods in stores.

There is also a devaluation-inflationary spiral. This is a process that is one of the consequences of devaluation. It happens, for example, if in a country that is heavily reliant on imports, its prices rise sharply. The government is trying to contain changes in the economy through devaluation, but there is a crisis that causes inflation and a new devaluation - next.

Devaluation is usually divided into several main types:

There are many reasons for devaluation. There are many macroeconomic factors that are the main source of influence in the beginning of the process of depreciation of the national currency, therefore the classification of reasons is relatively conditional. However, there are a number of reasons that cannot be ignored:

• Payment deficit - the lack of funds from the state to pay off external debt.
• High inflation - the state does not have the ability to cope with rising prices for goods within the country.
• Intentional stimulation by the state for the country's export sector.
• Lower prices for natural assets that are imports, such as oil.
• Lack of foreign exchange reserves.
• The need to increase competition of the national currency in relation to imports.
• Unstable situation in the country and, as a result, capital outflow from it.
• Changes in foreign policy, including sanctions from other countries.
• Active participation of foreign currency in the country's economy.
• Decrease in lending to the population and lower wages.
• Loss of confidence in the government and national currency among the population.
• External factors of non-economic nature: wars, man-made disasters, natural disasters.
• The desire of the state to strengthen the market for domestic goods, by strengthening the support of manufacturers within the country.

The devaluation is not necessarily a consequence of the crisis, the consequences of its implementation can vary greatly. There are both pros and cons from devaluation,.

Pros:

• As the value of foreign currency rises, so does export revenue. This is accompanied by a new infusion of foreign currency into the country.
• Gold reserves are not spent, but accumulated. With devaluation, the state does not need to spend additional funds to stabilize the national currency.
• Due to the inevitable rise in price of imports, the demand for domestic goods grows.
• Own production is grows.
• The country's balance of payments is improving.

Cons:

• Loss of interest in the country from foreign investors.
• The growth of foreign exchange rates due to rising demand from the population.
• Increased costs for the purchase of raw materials and goods outside the country.
• Due to the devaluation-inflationary spiral, the purchasing power of the population and its standard of living are declining, and inflation is increasing.
• Reduced social benefits.
• The confidence of the population in the national currency is decreasing.
• Increased capital outflows abroad.
• Strong weakening of banks and financial services.
• Reduced imports.

Not only the country's budget benefits from the devaluation process itself. Agricultural companies, travel companies, export companies - they also profit from devaluation. And, of course, all the citizens of the country who keep their savings in foreign currency, who picked the right moment and exchanged their money to make a decent profit.