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 ?
Mr Adgey said the contribution of non-domestic rates to the local economy is around PS700million and that won't change as the revaluation process is a revenue neutral exercise.
A circular from the Central Bank of Cyprus sent out on Monday to all banks in Cyprus clarified the revaluation requirements for mortgaged properties, and an opinion presented by the government's Law Office during Tuesday's session of the Ethics committee confirmed the Association's claim that the cost of property revaluation must burden the bank.
The Government's recent announcement that the 2015 Rating Revaluation will be postponed to April 2017 came as a surprise even though rumours had been circulating.
Prior to this request, the Local Government Minister, Carl Sargeant, was clear that he did not wish to hold a revaluation in Wales but was unable to come to a final decision on this because the powers were not devolved.
No revaluation will take place in 2015 in Wales unless the Welsh Assembly Government minister determines otherwise.
84 pence per share, while the upward revaluation of China Greenscape contributes 5.
Local Government Minister Rosie Winterton said: "Overall the effect of revaluation for the majority of business could be a reduction in their rates bills next year, with some of the largest decreases in sectors such as industry and manufacturing.
fears that if the latest Chinese decision is followed by a much steeper revaluation, it may be unable to offset its adverse effects only with rationalization efforts, such as cost reductions by capitalizing on wide regional differences in the cost of procurement in China.
704(c) allocations to take into account the BIG or BIL from the revaluation.
The next revaluation of commercial property is not due to take effect until April 2005 but will be based upon rental values in 2003.
Further, I estimate the revaluation due to price level changes, hut this revaluation effect is very small relative to other revaluations.
Municipalities base real estate assessments on the last revaluation performed.