Revaluating currency
Description
Giving a currency a higher value in relation to other currencies. This may be done by increasing the gold content of a nation's monetary unit or by an actual rise in the unit's exchange rate. The government of the capitalist nations use revaluation to combat inflation.
Context
By restricting the amount of foreign and largely speculative capital that investors put into a nation in hopes of a more profitable investment, revaluation makes it possible to restrain somewhat the increase in the total amount of money in circulation, thus slowing down the rise in domestic prices. Revaluation is also carried out to retard the growth of a favourable balance of trade.
Implementation
The Japanese government, under pressure from the USA in 1971, revalued the Yen to achieve a more equal balance of trade between the two countries. In 1969 and 1971 the Federal Republic of Germany carried out revaluation by restricting the amount of foreign capital that investors put into a nation. Revaluation makes it possible to restrain somewhat the increase in the total amount of money in circulation, thus slowing down the rise in domestic prices.
Claim
For the nation that has revalued its currency, overseas investment or the export of capital becomes more advantageous since it becomes possible to purchase foreign currency more cheaply.
The reduction in unit expenditures on imports that results from revaluation also restricts the rise in domestic prices.
Counter-claim
Revaluation reduces a nation's competitiveness on the world market and impedes the export of its goods.
It leads to an increased demand for imported commodities and a rise in imports.
Revaluation places a nation in a less advantageous position in comparison with other nations in terms of foreign trade, the influx of foreign capital, and international tourism.