revaluation


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Revaluation

An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.

Revaluation

A change to the exchange rate of a pegged currency. For example, if the central bank has declared a currency to be worth 10 U.S. dollars and later changes the exchange rate to $8, one refers to this as a revaluation. A revaluation generally, but does not always, refer to an increase in value.

revaluation

  1. the increase in the valuation of a FIXED ASSET to its current market value. Revaluation of fixed assets such as land and buildings may be necessary to reflect their APPRECIATION as property prices rise. Where revaluation takes place, the increase in the value of the fixed asset over its NET BOOK VALUE is added to the company's RESERVES.
  2. an administered increase in the EXCHANGE RATE of a currency against other currencies under a FIXED EXCHANGE RATE SYSTEM; for example, an increase in the value of the UK pound (£) against the US dollar ($) from one fixed or ‘pegged’ level to a higher level, say, from £1 = $2 to £1 = $3. Governments resort to revaluations as a means of eliminating a BALANCE OF PAYMENTS surplus. The effect of a revaluation is to make imports (in the local currency) cheaper, thereby inducing an increase in import demand, and exports (in the local currency) more expensive, thereby reducing export demand. Contrast DEVALUATION.
Revaluationclick for a larger image
Fig. 171 Revaluation. A revaluation of the pound against the dollar.

revaluation

an administered increase in the value of one CURRENCY against other currencies under a FIXED EXCHANGE-RATE SYSTEM, for example, as in Fig. 171, an increase in the value of the UK pound against the US dollar from one fixed value to another higher value, say, from £1 = $2.40 to £1 = $2.80. The objectives of a revaluation are to assist in the removal of a surplus in a country's BALANCE OF PAYMENTS and the excessive accumulation of INTERNATIONAL RESERVES. A revaluation makes IMPORTS (in the local currency) cheaper and EXPORTS (in the local currency) more expensive, thereby encouraging additional imports and lowering export demand.

How successful a revaluation is in removing a payments surplus depends on the reactions of export and import volumes to the change in relative prices, that is, the PRICE-ELASTICITY OF DEMAND for exports and imports. If these values are low, that is, demand is inelastic, trade volumes will not change very much, and the revaluation may in fact make the surplus larger. On the other hand, if export and import demand is elastic, then the change in trade volumes will operate to remove the surplus. BALANCE-OF-PAYMENTS EQUILIBRIUM will be restored if the sum of export and import elasticities is greater than unity (the MARSHALL-LERNER CONDITION).

Also, whether or not a revaluation ‘works’ in restoring balance-of-payments equilibrium depends on a number of factors, including the reaction of domestic firms and the effect of the government's other policies over the longer term (for example, the control of inflation). For business, a revaluation makes imports more price-competitive, putting pressure on domestic producers either to cut their prices or, alternatively, depend more on advertising and sales promotion. Likewise, in export markets, a firm may choose to hold its prices, accepting lower profit margins rather than increase them in order to maintain market share. Thus, in the short run, revaluations threaten firms’ current profitability and market position, putting firms under pressure to cut costs by improving productivity and generally placing a greater emphasis on PRODUCT DIFFERENTIATION as a means of remaining competitive against overseas suppliers. Contrast DEVALUATION.

See EXTERNAL-INTERNAL BALANCE MODEL.

References in periodicals archive ?
However, the report also found that London businesses can expect to be hit very hard when the deferred revaluation is carried out in 2017.
Businesses still have time to make a case for lower rates and he urged owners to check their revaluations before the April 1 deadline.
As a result of revaluation appeals, the rateable value of properties for which revaluation appeals have been resolved has reduced from approximately Au4,561m to Au4,341m, a drop of Au219m in rateable value (which equates to approx Au103m billed in 2014-15).
The inventor of the New Revaluation Arrow now seeks a third party licensee to manufacture, market, and distribute the product for him under a royalty agreement.
The Central Bank's circular clarifies the conditions under which revaluations are required -- they are certainly not required in all cases -- but what is now certain is that the revaluation cost must be borne by the banks," he said.
The purpose of revaluation is to re-base rateable values to take account of market rental value changes.
The proposal to delay the 2015 rating revaluation until 2017 is one of a number of measures being put forward by the Department for Communities and Local Government as part of the Growth and Infrastructure Bill.
If an asset's carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus.
Our (triennial) revaluation will now be in for fiscal year 2012, then again in fiscal year 2014, followed by the standard three-year cycles from that point on.
During the last revaluation in Wales in 2005, four times as many homes moved up one or two council tax bands than moved down, the UK Government said.
The Communities Secretary said families in England could save up to pounds 320 a year in local tax hikes from his decision not to go ahead with a revaluation being planned by Labour.
The context for this revaluation follows a period of strong growth.