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 ?
704-1(b)(2)(iv)(f)(5)(v)--which permits securities partnerships, substantially all the assets of which are readily tradable on established securities market, to revalue their property under GAAP--to include other partnerships whose assets may not be currently traded on an established exchange but which may have a reliable method for regularly adjusting the FMVs of their assets for GAAP purposes.
The revaluation method allows companies to revalue their assets if fair value can be reliably measured for the entire class of assets.
There is no intention at this time to revalue the dirham against the dollar,' the daily Al-Ittihad quoted Sultan Nasser Al-Suweidi as saying.
Sfakianakis gave six reasons for Riyadh not to revalue the Saudi riyal:
Schumer and Graham are co-authors of a bill that threatens China with a hefty tariff on its exports to the United States unless Beijing agrees to revalue its currency, the yuan.
When asked if they believe mold can revalue a real estate transaction, 99% of respondents said yes.
As China continues to manipulate the yuan, the commission supports the passage of the Graham-Schumer China Free Trade Bill that would impose across-the-board tariffs on Chinese goods if China does not revalue its currency.
A recent move to revalue the Chinese currency, the yuan, by 2.
Behind the Schumer bill is a push to get China to revalue its currency, the yuan.
Congressmen are taking a more open view to pleas by electronics manufacturers to pressure China to revalue its currency.
The announced rollback in the rate reductions effectively increases current and future corporate income tax rates and, thus, all corporations doing business in Ontario must revalue assets and liabilities that were recorded under the previous tax rate schedule.
Moreover, Shulman does not ground his argument in an effort to revalue these works through a process which recovers them from the Left, especially the Communist Party of the United States of America (CPUSA).