Currency devaluations can be used by countries to achieve economic policy. Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts.

How does devaluation affect the economy?

A devaluation means there is a fall in the value of a currency. The main effects are: Exports are cheaper to foreign customers. ... In the short-term, a devaluation tends to cause inflation, higher growth and increased demand for exports.

How does devaluation help economic growth?

Apart from boosting exports, devaluation improves country's trade balance and helps build forex reserves. ... In order to stimulate the exports, the domestic output is encouraged thereby improving employment. Import substitution takes priority and thus increasing the gross domestic product (GDP) of the economy.