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is sufficiently low, the central bank will experience an inflow of foreign currency, because foreigners will find it inexpensive to acquire the local currency from the central bank and use it to purchase locally produced goods, and so they will do a lot of that. With foreign currency flowing into its
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may experience political pressure from two sources to increase the value of the currency: Domestic consumers will complain that they find it expensive to acquire foreign currency with which to buy importable goods; and foreign governments, on behalf of foreign exporters, may urge such a revaluation
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A revaluation of the local currency to a higher value vis-a-vis other currencies will make it less expensive for local consumers to acquire the foreign funds with which to import foreign goods, so they will do more importing. Domestic producers, on the other hand, will be able to sell fewer export
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by standing ready to buy or sell foreign currency at that rate. In general terms, revaluation of a currency is a calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline could in principle be anything from wage rates to the price of gold to a foreign
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169:, not a revaluation (this is typically accomplished by issuing a new currency with a different, usually lower, face value and a different, usually higher, exchange rate while leaving the old currency unchanged; then the new replaces the old).
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will move to a smaller surplus or to a deficit, and the central bank will experience a decrease in its net inflow of foreign currency to its reserves, or even a reversal to a net outflow.
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currency. In a fixed exchange rate regime, only a decision by a country's government (specifically, its central bank) can alter the official value of the currency.
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store of reserves, in principle the central bank could maintain this situation indefinitely, and indeed domestic exporters will like this situation. However, the
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goods because foreign consumers will find it more expensive to obtain the local funds with which to pay for them; so the country will export less. Thus its
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