A devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national currency in relation to a foreign reference currency or currency basket.

• A monetary authority (e.g., a central bank) maintains a fixed value of its currency to buy or sell foreign currency with the domestic currency at a stated rate;
• Devaluation is an indication that the monetary authority will buy and sell foreign currency at a lower rate.
• Under a floating exchange rate system a decrease in a currency's value relative to other major currency benchmarks is instead called depreciation; likewise, an increase in the currency's value is called appreciation.
• Floating exchange rate –An exchange rates are determined by market forces acting on the foreign exchange market, and not by government or central bank policy actions.
• Under fixed exchange rates, persistent capital outflows or trade deficits will involve the central bank using its foreign exchange reserves to buy domestic currency, to prop up demand for the domestic currency and thus to prop up its value.
• However, this activity is limited by the amount of foreign currency reserves the central bank owns; the prospect of running out of these reserves and having to abandon this process may lead a central bank to devalue its currency in order to stop the foreign currency outflows.

• In an open market, speculators sell the currency in exchange for the country's foreign reserves,
• Increasing pressure on the issuing country to make an actual devaluation.
• When speculators buy out all of the foreign reserves, a balance of payments crisis occurs.
• The balance of payments crisis occurs when the real exchange rate (exchange rate adjusted for relative price differences between countries) is equal to the nominal exchange rate (the stated rate)

• It lowers the value of the domestic currency in relation to all other countries, most significantly with its major trading partners.
• It assist the domestic economy by making exports less expensive, enabling exporters to more easily compete in the foreign markets.
• It also makes imports more expensive, providing a disincentive for domestic consumers to purchase imported goods,
• Devluation leads to lower levels of import
• It improves a country's balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.