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Depreciation (currency)

Translation
Depreciation (currency)
For the accounting term, see Depreciation.
Foreign exchange

Exchange rates
Currency band
Exchange rate
Exchange rate regime
Exchange rate flexibility
Dollarization
Fixed exchange rate
Floating exchange rate
Linked exchange rate
Managed float regime

Markets
Foreign exchange market
Futures exchange
Retail forex

Assets
Currency
Currency future
Non-deliverable forward
Forex swap
Currency swap
Foreign exchange option

Historical agreements
Bretton Woods Conference
Smithsonian Agreement
Plaza Accord
Louvre Accord

See also
Bureau de change / currency exchange (office)
Hard currency


Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears interchangeably with devaluation. Its opposite is called appreciation.

The depreciation of a country's currency refers to a decrease in the value of that country's currency. For instance, if the Canadian dollar depreciates relative to the euro, the exchange rate (the Canadian dollar price of euros) rises - it takes more Canadian dollars to purchase 1 euro (1 EUR=1.5CAD → 1 EUR=1.7CAD). When the Canadian dollar depreciates relative to the Euro, the Canadian dollar becomes more competitive because the price of Canadian goods when exchanged to Euro will be cheaper leading to a larger Canadian export. On the other hand, European countries that denominates its goods and services in Euros will have lost competitiveness to the Canadian dollar. The price of European products denominated in Euros will thus become more expensive in Canada.

The appreciation of a country's currency refers to an increase in the value of that country's currency. Continuing with the CAD/EUR example, if the Canadian dollar appreciates relative to the euro, the exchange rate falls - it takes fewer Canadian dollars to purchase 1 euro (1 EUR=1.5CAD → 1 EUR=1.4CAD). When the Canadian dollar appreciates relative to the Euro, the Canadian dollar becomes less competitive. This will lead to larger imports of European goods and services, and lower exports of Canadian goods and services.

See also

References



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