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Devaluation is a deliberate reduction in the value of a national currency, relative to another currency or standard, through the intervention of its government or central bank. Devaluation is a monetary policy tool used in countries with fixed (pegged) or semi-fixed currencies. Devaluation can be achieved by lowering interest rates, reducing the amount of currency in circulation, or lowering its exchange rate on the forex market by selling off reserves. For national economies which rely on manufacturing exports, devaluation can make their goods more competitive.
A government or central bank may devaluate its issued currency to make their exports cheaper and thus more attractive in the international market. This can cause an increase in the demand of these exports, which can in turn boost their economy.
Currency devaluation also occurs to make more imports more expensive, as people must spend more money to purchase the same amount of goods. This can encourage them to buy locally produced goods, which can boost the local economy.
Nevertheless, currency devaluation carries some consequences for the local economy.
A country with devalued currency can attract short-term speculative inflows from investors seeking to take advantage of the currency’s lower value. This can create an unsustainable investment bubble that can lead to economic instability.
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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities L.L.C – S.P.C (“ADSS”), a limited liability company – sole proprietorship company incorporated under United Arab Emirates law. Registered under Commercial License No.1190047. ADS Securities L.L.C S.P.C is regulated and authorised in the UAE by the Capital Market Authority (CMA) under Category 1 License No.305027 (Trading Broker, Trading and Clearing Broker, Trading Broker in the International Markets, Trading Broker of OTC Derivatives and Currencies in the Spot Market, Financial Products Dealer) and Category 5 License No.20200000217 (Introduction). Registered Office: 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
