What does "devaluation of currency" mean in reference to Indian Rupee?

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Ashley Kannan | Middle School Teacher | (Level 3) Distinguished Educator

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In the most direct of terms, the devaluation of currency means that the government lowers the value of a particular currency by increasing the amount needed to purchase another currency of value.  In this case, the Indian Rupee has been devalued a bit in order to purchase more of American Dollars, Pounds Sterling, and/ or the Euro.  There are different reasons why currency can be devalued, and why the Rupee has been devalued.  One reason is that Indian Rupee holders want the relative security of dollars, and because of this, the government has increased the amount of Rupees needed to purchase said dollar currency.  Over the last year, the amount of Rupee versus the dollar has gone up by about ten rupees.  Another reason why currency is devalued is reflective of domestic economic strength.  Right now, the Indian economy is experiencing some of the same challenges that have been felt in other nations for quite a while.  As part of the globalized economic setup, the challenges faced in one country are shared in another.  The current economic challenges in Europe regarding the potential "Grexit" vote this weekend and the issues in Spain have only added to this.  With this week's report from S & P to reflect a potential drop in India's credit rating, pointing to both slowing growth in India as well as political inertia to legitimate and authentic economic change, the reality is that Indian economic affairs are experiencing a slow down in activity, with business growth in the last year dropping from about 9% to 5%.  In light of these realities, the currency has been devalued against other foreign currencies.


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