This presentation is about the devaluation of Indian currency with all major concepts and issues regarding devaluation discussed in it. Basically, Devaluation refers to a reduction in the external value of a currency in terms of other currencies. Here we are particularly talking about the Devaluation of Indian Currency (Rupee) against Foreign Currency(Dollar). Refer to the slides for further details.

1. Devaluation
of
Indian
Currency

2. CONTENTS
• MEANING
• HISTORY
• REASONS
• TYPES
• EFFECTS
• CONDITIONS FOR SUCCESS

3. What is Devaluation?

4. INTRODUCTION
• Devaluation means decreasing the value of nation's currency
relative to gold or the currencies of other nations. Under it ,
there is no change in the internal purchasing power of the
currency.
• For example, Rs 25=1$ (before devaluation)
Rs 30=1$ (after devaluation)
• In modern monetary policy, it is a reduction in the value of
currency with respect to those goods, services or other
monetary units with which that currency can be exchanged.

5. DEPRECIATION AND DEVALUATION
• Depreciation is used to describe a decrease in
a currency’s value due to market forces , not
government or central bank policy actions.
• Depreciation and devaluation are sometimes
incorrectly used interchangeably , but they
always refer to values in terms of other
currencies.

6. HISTORY OF
DEVALUATION

7. THE 1966 DEVALUATION
 Current account deficit of over 290 crore due to
second five year plan
 Inflation has caused Indian prices to become much
higher than world prices
 Budget deficit due to defense spending in 1965/1966
was 24.06% of total expenditure.
 Money supply increase
 Depleting foreign reserves
 The first was India's war with Pakistan in late 1965.
 The US and other countries friendly towards pak
withdrew foreign aid to India

8. THE 1991 DEVALUATION
 The trade deficit in 1990 US $9.44 billion.
 The current account deficit was US $9.7 billion.
 The gulf war to higher imports due to the rise in oil
prices.
 Cost pull inflation.
 Political and economical instability.
 Depleting foreign exchange reserves.
 Gold is pledged to IMF by preceding government.

9. VALUATION HISTORY

11. REASONSFOR DEVALUATION
• To boost exports
• To discourage imports
• To correct the balance of payments
• To make adjustments in the currency
value

12. REASONS FOR DEVALUATION
• To reduce debt burdens
• To increase competiveness in the foreign
market
• To achieve higher economic growth
• To increase the standard of living

13. EFFECTS OF DEVALUATION
• Effects of Devaluation on Exports
• Effects of Devaluation on Imports
• The J-Curve Effect

14. EFFECTS OF DEVALUATION ON EXPORTS
• Inelastic Demand
for Exports
 It has an
adverse effect
on BOP of
country
devaluating its
currency
because its
export earning
have decreased.

15. EFFECTS OF DEVALUATION ON EXPORTS
• ELASTIC
DEMANDFOR
EXPORTS
 It has
favourable
effect on BOP
of country
devaluating
its currency
by improving
the BOP.

16. EFFECTS OF DEVALUATION ON EXPORTS
• UNITY
ELASTICITY OF
DEMANDFOR
EXPORTS
 There is no
effect on the
BOP with
devaluation.

17. EFFECTS OF DEVALUATION ON IMPORTS
• INELASTIC
DEMANDFOR
IMPORTS
 The BOP of
the devaluing
country
worsen with
perfectly
inelastic
demand for
imports.

18. EFFECTS OF DEVALUATION ON IMPORTS
• ELASTIC
DEMANDFOR
IMPORTS
 It has
favourable
effect on BOP
of country
devaluating
its currency.

19. EFFECTS OF DEVALUATION ON IMPORTS
• UNITY
ELASTICITY OF
DEMANDFOR
IMPORTS
 There is no
effect of
devaluation
on BOP.

20. THE J-CURVE EFFECT
• When devaluation
causes the balance of
payments to worsen
in the beginning and
then to improve
it,there is a J-Curve
Effect.

22. 1) Planned Devaluation
2)Market-driven Devaluation

23. 1) PLANNED DEVALUATION
Planned devaluations are brought about
almost exclusively by government
decisions to deliberately reduce the
relative value of a currency, usually
intended as a means to some
improvement in the country's trading
position.

24. 2) Market-driven
devaluation
The value of a currency, relative to
the world’s major currencies,
especially the dollar, declines on its
own through trading in the foreign
exchange markets.

25. CONDITIONS FORTHE SUCCESS OF
DEVALUATION
• Domestic PriceStability
• InternationalCooperation
• Elasticity of imports and exports
• Spiritof sacrificeby the people