What is a Revaluation?
Revaluation means increasing the worth of assets, goods, Gold prices or especially the currency compared to a chosen baseline varies under fixed exchange rate or floating exchange rate system.. It is the opposite of devaluation, which means decreasing the worth.
A currency revaluation can often happen because of big changes in the foreign currency market and other related exchange rates including changes in exchange rates between various countries. The currency revaluation can also alter the values of the assets that the companies in a country hold. The book value of the foreign held assets might need to be changed to show the effect of the new currency rate.
Understanding the Revaluation
If a fixed exchange rate is followed in any country, only the country’s government can pass the judgment, such as that country's central bank can revamp the currency's value. This helps to stabilize the currency’s value and reduce uncertainty for traders and investors. Developing economies often use a fixed exchange rate system to limit speculation and provide a stable system.
A floating exchange rate system is the opposite of a fixed rate system. The market forces of supply and demand determine the value of a currency without any intervention by a monetary authority. A floating exchange rate regime can fluctuate daily or even hourly depending on the changes in the foreign exchange market and the associated exchange rates.
The foreign exchange market is the market where foreign currencies are traded. India was a member of the International Monetary Fund (IMF) and followed the par value system of the pegged exchange rate system under the Bretton Woods Agreement until 1971 when the system collapsed. After that, India pegged its rupee to the pound sterling for four years, then to a basket of 14 currencies, which was later reduced to five currencies of its major trading partners. Currently, India has adopted a managed floating exchange rate system, which is a mix of fixed and floating exchange rates.