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 ?
Despite its rather awkward title, Revaluing Renaissance Art offers some interesting insight s on the evaluation of knowledge and things in Renaissance Italy.
But Al Attiyah said the central bankers "did not discuss revaluing Gulf currencies against the dollar."
DUBAI: Gulf Arab countries should not rush to decide on revaluing their dollar-pegged currencies because volatility in the US currency is normal, the Central Bank of Bahrain governor said.
2504(c) and 2001(f) provide that the IRS is prohibited from revaluing gifts made in prior years in calculating subsequent gift or estate tax liability.
2504(c) and 2001(f) require that, for the Service to be barred from revaluing a gift, the applicable statute of limitations (SOL) on assessment has to have expired for such gift.
2504(c), the Service repeatedly asserted that it did not extend to the estate tax arena, and that it was never barred from revaluing prior gifts in computing adjusted taxable gifts for estate tax purposes.
DOHA: Gulf oil producers would consider revaluing their dollar-pegged currencies together at some stage to tackle rising inflation, Qatar's finance minister said yesterday.
"This is a GCC concern," Kamal said, when asked if there was any possibility Qatar would look at revaluing its currency.
"We are going to take the appropriate decision, but only as the GCC," Shaikh Abdullah said on the sidelines of a conference here, when asked whether the UAE was considering revaluing the dirham.
The IRS allowed the refund on the original 1991 tax return, but disallowed the verbal request for revaluing the 1982 and 1989 gifts on the 1991 gift tax return.
For estate tax purposes, the Service can revalue a decedent's transfers reported on a gift tax return when computing adjusted taxable gifts, even though the SOL may have expired for revaluing gifts for gift tax purposes.
In a meeting to discuss how to fight rising prices, the Shura Council did not debate the possibility of revaluing the Saudi riyal against the dollar, Osama Abu Gherara said.