Revaluation is a method of dealing with the effects of inflation
Revaluation is a method of dealing with the effects of inflation

Video: Revaluation is a method of dealing with the effects of inflation

Video: Revaluation is a method of dealing with the effects of inflation
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After the First World War, a new era of economic development began. The most important distinguishing characteristic of this stage was the replacement of the long-ruling gold standard by a system based on paper banknotes. Thanks to the measures taken, the state received an excellent opportunity to increase the budget expenditure item through deficit financing. This, in turn, had a negative impact on the direct value of money. In the domestic market, the depreciation of the currency affected the purchasing power of the population. On the outside, the national currency has reduced its value in relation to the money of other countries. In economics, this process is called devaluation. People who lived on the territory of the USSR and in the CIS countries formed after its collapse - the Russian Federation, Ukraine, the Republic of Belarus and others are well acquainted with him).

revaluation is
revaluation is

In the world and national economies there is also such a process as revaluation. This is the opposite term for devaluation. It will be discussed in this article.

Etymology of the concept in question

Revaluation is a term that was borrowed from the Latin language. If we consider the concept from a morphological pointof view, two components can be distinguished: the prefix "re" and the base "valeo". The first part in translation means "increase, increase." The second is "to matter, to be valuable." If you put together the parts of the word, you get the following: increase in value.

currency revaluation is
currency revaluation is

Gradually this term began to be used in the economy. Today, revaluation is the process of increasing the value / exchange rate of a country's currency in relation to the currencies of other states or international monetary units.

First scope. International level

In this case, the revaluation of the national currency is a generally accepted and familiar term for many countries, denoting an increase in the cost of means of payment within the state in relation to international monetary units and currencies of other countries.

revaluation of the national currency
revaluation of the national currency

As a rule, this process in many cases becomes one of the methods of economic recovery after inflation. At the same time, in such a situation, it becomes possible to acquire the funds of any state cheaper. This has a positive effect on the business of importing goods and products, as well as on the work of capital importers. On the other hand, currency revaluation is a probable and almost inevitable loss of profits/customers for enterprises whose main activity is the export of goods abroad.

Second scope. National level

In the structure of the monetary system of a particular country at the domestic level, this process is alsomay take place. For example, the government wants to know what is the total amount of the gold and foreign exchange reserve of the state, which is on the balance sheet of the Central Bank, in terms of the national currency rate. This question is followed by a revaluation of all cash. This process has a certain name - "revaluation". This action is carried out with a certain frequency or depending on financial factors (crisis, war, etc.).

Third scope. Industry Level

At the micro level, it is also possible to use the term in question. For example, when evaluating property that constitutes an asset of an organization. In such a case, a revaluation is a revaluation of the entire balance sheet to account for the effects of inflation. First of all, fixed assets, capital and various reserves are taken into account here.

currency revaluation means
currency revaluation means

Negative moments

As a rule, a country that wants to stabilize its economy through revaluation puts itself in an ambivalent position. On the one hand, this process will strengthen the national currency. This is the most important positive. On the other hand, a number of negative factors influence the decision of the government:

1. Decreased investment in the national economy from abroad.

2. Unsuitable conditions for attracting tourists and developing the tourism sector.3. Currency revaluation also means falling demand for national goods in the foreign market.

It is precisely because of these fairly large minuses that this process occursconsiderably rare. Only strong countries in the financial situation allow themselves to carry out revaluation. These include Germany, Japan, Switzerland. Once in the 19th century, the United States and Great Britain also used revaluation to stabilize their economies.

ruble revaluation is
ruble revaluation is

Investment outflow

As noted above, the method in question is used as a means of combating inflation. In standard situations, revaluation becomes the only solution when there is an urgent need to import goods (since national goods become uncompetitive for export due to their high cost) or capital exports.

If the government decides to carry out this process in the conditions of an economic crisis, it should be ready for a decline in the level of foreign entrepreneurial interest. As a rule, foreign companies are not too interested in investing at an unfavorable exchange rate for them. And the latter is automatically set as a consequence of the revaluation process. At the same time, the fall in the level of the national currency in the domestic market may not stop. In the conditions of the Russian economy, the revaluation of the ruble is a method that does not need to be resorted to due to the absence of a high level of inflation. In addition, a huge number of enterprises with foreign capital operate in the country. Therefore, the revaluation will lead to a decrease in investment and to a new round of weakening of the economy.

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