What is a 'Revaluation'

A revaluation is a calculated upward adjustment to a country's official exchange rate relative to a chosen baseline; the baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government, such as its central bank, can alter the official value of the currency. Revaluation is contrasted by devaluation, which is a downward adjustment.

BREAKING DOWN 'Revaluation'

Revaluations occur on a regular basis, marked by the observable fluctuations in the foreign currency market and associated exchange rates.

Example of Currency Revaluation

Say a government has set 10 units of its currency equal to $1 in U.S. currency. To revalue, the government might change the rate to five units per dollar. This results in its currency being twice as expensive when compared to U.S. dollars than it was previously. Before the Chinese government revalued the yuan, it was pegged to the U.S. dollar. After revaluation, It was pegged to a basket of world currencies.

Currency Revaluation and Asset Revaluation

Revaluations affect not just the currency being examined but can also affect the valuation of assets held by foreign companies in that particular currency. Since a revaluation has the potential to change the exchange rate between two countries and their respective currencies, the book values of foreign-held assets may have to be adjusted to reflect the impact of the change in the exchange rate.

For example, if the aforementioned currency revaluation occurred, any assets held by a U.S. company in the foreign economy need to be revalued. If the asset, held in foreign currency, was previously valued at $100,000 based on the old exchange rate, the revaluation would require its value to be changed to $200,000. This change reflects the new value of the foreign asset, in the home currency, by adjusting for the revaluation of the currency involved.

Global Events and Revaluation

Currency revaluation can be triggered by a variety of events. Some of the more common causes include changes in the interest rates between various countries and large-scale events that affect the overall profitability, or competitiveness, of an economy. Changes in leadership can also cause fluctuations, as they may signal a change in a particular market’s stability.

Speculative demand can also impact the value of a currency. For example, in 2016, prior to the vote determining if Britain would remain part of the European Union, speculation caused fluctuations in the value of multiple currencies, including the U.S. dollar and the Chinese yuan. Since it was not yet known whether Britain would remain, any action taken because of the possibility was considered speculative in nature.

RELATED TERMS
  1. Revaluation Rates

    Revaluation rates, or "reval rates" are periodically fixed rates ...
  2. Devaluation

    Devaluation is a deliberate downward adjustment to the value ...
  3. International Currency Converter

    An international currency converter converts the value of one ...
  4. Currency ETF

    Currency ETFs (exchange-traded funds) aim to replicate movements ...
  5. Currency Convertibility

    Currency convertibility is the degree to which a country can ...
  6. Tier 2 Capital

    Tier 2 capital is supplementary capital including items like ...
Related Articles
  1. Trading

    Why China's Currency Tangos With The USD

    Investopedia explains: It takes two to tango, but unless both partners move in perfect cohesion, a sequence of graceful maneuvers can be reduced to a series of clumsy moves. The latter depiction ...
  2. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
  3. Trading

    Currency fluctuations: How they effect the economy

    Currency fluctuations are a natural outcome of the floating exchange rate system that is the norm for most major economies. Read on for what effects these changes can have.
  4. Trading

    Top Ten Reasons Not to Invest In The Iraqi Dinar

    Before you plunk down your hard-earned dollars for the Iraqi dinar, here are our Top Ten reasons why you should not invest in this scam.
  5. Trading

    Pegged exchange rates: The pros and cons

    A pegged currency can give a country many advantages, but these advantages come at a price. Learn more today!
  6. Trading

    Interest Rate and Currency Value And Exchange Rate

    In general, higher interest rates in one country tend to increase the value of its currency.
  7. Trading

    What causes a currency crisis?

    Find out what can cause a currency to collapse and what central banks can do to help in times of currency crisis.
  8. Trading

    How to Calculate an Exchange Rate

    Struggling to get a grasp on exchange rates? Here's what you need to know.
  9. Trading

    Main Factors that Influence Exchange Rates

    The exchange rate is one of the most important determinants of a country's relative level of economic health and can impact your returns.
  10. Trading

    Forex market: Who trades currency and why

    The forex market has a lot of unique attributes that may come as a surprise for new traders. Learn more about who trades foreign currencies and why.
RELATED FAQS
  1. How do you account for changes in the market value of various fixed assets?

    Understand how to account for changes in the fair market value of a company's fixed assets. Learn what accounting methods ... Read Answer >>
  2. How are international exchange rates set?

    Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments ... Read Answer >>
  3. How do national interest rates affect a currency's value and exchange rate?

    Generally, higher interest rates increase the value of a country's currency and lower interest rates tend to be unattractive ... Read Answer >>
  4. What are key economic factors that can cause currency depreciation in a country?

    Read about the causes of currency devaluation, and find out how to differentiate between relative and absolute currency devaluation. Read Answer >>
  5. How does inflation affect the exchange rate between two nations?

    Countries attempt to balance interest rates and inflation, but the interrelationship between the two is complex and can influence ... Read Answer >>
Trading Center