# Currency Revaluation Explained: Definition, Effects, and Examples

## What Is a Revaluation?

A revaluation is an upward adjustment to a country's official [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) relative to a chosen baseline. The baseline can include wage rates, the price of gold, or a foreign currency. Revaluation is the opposite of [devaluation](https://www.investopedia.com/terms/d/devaluation.asp), which is a downward adjustment of a country's official exchange rate.

Revaluations can affect the exchange rate between countries and the values of foreign-held assets, requiring a revaluation of those assets. Broadly, revaluations can influence not just asset valuations but international trade and domestic economic conditions.

The United States switched from a fixed to a floating exchange rate in 1973, which allowed the rate to fluctuate naturally according to the currency market. In 2005, China revalued its fixed rate currency and pegged it to a group of world currencies.

### Key Takeaways

*   Currency revaluation is an upward adjustment in a country's official exchange rate, making foreign goods cheaper for domestic importers but potentially reducing exports due to higher prices for foreign buyers.
*   In a fixed exchange rate system, revaluation is solely a governmental decision, often executed by a central bank to counter speculation and maintain stability.
*   A revaluation can significantly impact the valuation of assets held by foreign companies by altering the exchange rate, thereby affecting book values.
*   Common triggers for revaluation include changes in international interest rates, major economic events, and shifts in speculative demand or market stability.
*   While currency revaluation increases a currency's value, it has complex implications for international trade balances and domestic economic conditions.

## How Currency Revaluation Impacts Exchange Rates and Economies

In a [fixed exchange rate](https://www.investopedia.com/terms/f/fixedexchangerate.asp) regime, only a decision by a country's government, such as its [central bank](https://www.investopedia.com/terms/c/centralbank.asp), can alter the official value of the currency. Developing economies often use a fixed-rate system to limit speculation and maintain stability.

Floating rates differ from fixed rates as they can change regularly, according to currency market fluctuations.

The U.S. used a fixed exchange rate until 1973 when President Richard Nixon took the country off the [gold standard](https://www.investopedia.com/terms/g/goldstandard.asp), introducing a floating rate. Although China has an advanced economy, its currency has been fixed since 1994. Before China's 2005 currency revaluation, its currency was [pegged to the U.S. dollar](https://www.investopedia.com/terms/c/currency-peg.asp). After revaluation, it was pegged to a basket of world currencies.

## How Revaluations Alter Currency Value and Asset Valuation

Revaluations affect both the currency examined and the value of foreign-held assets in that currency. A revaluation can alter exchange rates between countries, requiring adjustment of the [book values](https://www.investopedia.com/terms/b/bookvalue.asp) of foreign-held assets.

For example, if a foreign government sets 10 of its currency units to equal $1, revaluing might change it to five units per dollar. This revaluation makes its currency twice as expensive compared to U.S. dollars.

If the aforementioned currency revaluation occurred, any assets held by a U.S. company in the foreign economy would need to be revalued. If the asset, held in foreign currency, was previously valued at $100,000 based on the old exchange rate, the revaluation would require its value to be changed to $200,000. This change reflects the new value of the foreign asset, in the home currency, by adjusting for the revaluation of the currency involved.

## Factors Leading to Currency Revaluation

Currency revaluation can be triggered by a variety of events. Some of the more common causes include changes in the interest rates between various countries and large-scale events that affect the overall profitability, or competitiveness, of an economy. Changes in leadership can also cause fluctuations because they may signal a change in a particular market’s stability.

Speculative demand can also affect the value of a currency. For example, in 2016, prior to the vote determining if Britain would remain part of the [European Union (EU)](https://www.investopedia.com/terms/e/europeanunion.asp), speculation caused fluctuations in the value of multiple currencies. Since it was not yet known at that time whether or not Britain would remain part of the EU, any action taken because of this possibility was considered speculative in nature.

## What Is the Effect of a Currency Revaluation?

A currency revaluation increases the value of a currency in relation to other currencies. This makes the purchase of foreign goods in foreign currencies less expensive to domestic importers. Conversely, domestic exporters will see a decline in exporting business as the exporting goods are now more expensive to foreign importers.

## Is Currency Revaluation Good or Bad?

Currency revaluation is usually good for the country that does the revaluation as it increases the value of the currency. Exchange rates are bilateral, so the improvement in one currency means the decline of another; however, because the world is intertwined, changes in currency values can have far-reaching consequences, which could impact the levels of imports and exports. So though a currency revaluation might be good for a country's currency, it makes its goods more expensive, possibly hurting the level of exports.

## How Can a Country Increase the Value of Its Currency?

Currencies are affected by a variety of factors. Some ways that a country can improve its currency is by purchasing its own currency and selling foreign exchange assets to do so. It can also raise interest rates, reduce inflation, and implement supply-side economic policies, such as increasing competitiveness.

## The Bottom Line

Revaluation is an important economic tool, used to adjust a country's official exchange rate upward relative to a benchmark, such as another country's exchange rate or wage rates. Revaluations can be triggered by changes in interest rates, large-scale economic events, or speculative demand. Typically, they increase the value of a country's currency and can have both positive and negative impacts on imports and exports. Revalued exchange rates can affect the value of foreign-held assets' book values.

Only governments can revalue a currency when the exchange rate is fixed, while floating exchange rate currencies fluctuate according to changes in currency markets. Understanding currency revaluations is crucial for businesses engaged in international trade and for investors whose portfolios have foreign currency exposure.

> **Article Sources**
>
> 1.  International Monetary Fund. "[The End of the Bretton Woods System (1972-1981)](https://www.imf.org/external/about/histend.htm)."
>     
> 2.  Congressional Research Service. "[China's Currency Policy: an Analysis of the Economic Issues](https://crsreports.congress.gov/product/pdf/RS/RS21625/70)." Pages 2-3.
>     
> 3.  The Washington Post. "'[Brexit' Could Send Shock Waves Across U.S. and Global Economy](https://www.washingtonpost.com/news/wonk/wp/2016/06/18/how-brexit-could-hurt-america/)."