1. REASONS & EFFECTS OF
DEVALUATION OF CURRENCY
PRESENTED BY:
KIRAN KUMAR
AMIT KUMAR
NARESH
NAVYA
IIPM (SS 11-13)

2. What is Devaluation?
IIPM (SS 11-13)

3. “one country's currency is reduced in value in comparison
to other currencies”
IIPM (SS 11-13)

4. NEEDS FOR DEVALUATION
• To relieve an unfavorable balance of trade.
• Economic stabilization.
• Correcting the price distortions.
• To increase competitiveness in the foreign markets.
• To raise national income and per capita.
• Achieve higher standards of living.
• Close the development gap.
• Government policies of high tariffs on imports.
• Restrictions on commodities as well as capital flows.
IIPM (SS 11-13)

5. TYPES
1) Planned devaluation
2) Market-driven devaluation
IIPM (SS 11-13)

6. cont…
1) Planned devaluation: -
Planned devaluations are brought about almost exclusively by
government decisions to deliberately reduce the relative value of a
currency, usually intended as a means to some improvement in the
country's trading position.
2) Market-driven devaluation: -
Formal recognition by a government, frequently during a monetary
crisis, that the value of its currency relative to major world currencies—
especially the dollar—has already depreciated through trading in the
foreign exchange markets
IIPM (SS 11-13)

7. EFFECTS OF DEVALUEATION
• Improve trade balance
• Alleviate balance of payments difficulties
• Expand output and employment
IIPM (SS 11-13)

8. Effects of Devaluation
An import reduces Improve trade balance Reduce the smuggling
Local output increase
Positive bal of payments RO
I
Economic stabilization Govt tax improves
Employment improves Increment in
foreign
investment
Expansion of industries High standard
of living Rise in Govt exp
Production increases Per capita income
increase
Profit
Export increases
improves
Consumption
Price fall
IIPM (SS 11-13) increase

9. THE 1966 DEVALUATION
Current account deficit of over 290 crore due to second five
year plan
Inflation has caused Indian prices to become much higher than
world prices
Budget deficit due to defense spending in 1965/1966 was
24.06% of total expenditure.
Money supply increase
Depleting foreign reserves
The first was India's war with Pakistan in late 1965.
The US and other countries friendly towards pak withdrew
foreign aid to India.
IIPM (SS 11-13)

10. THE 1991 DEVALUEAION
The trade deficit in 1990 US $9.44 billion.
The current account deficit was US $9.7 billion.
The gulf war to higher imports due to the rise in oil prices.
Cost pull inflation.
Political and economical instability.
Depleting foreign exchange reserves.
Gold is pledged to IMF by preceding government.
IIPM (SS 11-13)

11. THANK YOU
IIPM (SS 11-13)