Devaluation of currency: Devaluation of currency on modern monetary policy is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged. "Devaluation" means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency.
Example: A currency is considered devalued when it loses value relative to other
currencies in the foreign exchange market. A currency's devaluation is the result of a nation's monetary policy. A central
bank can make the conscious effort to make its currency less valuable. If
Country XYZ's currency is set at a fixed exchange rate of 2:1 to the U.S.
dollar and, due to a weak economy, XYZ cannot afford to pay the interest rate
on its debt outstanding, XYZ may devalue their currency. This means the central
bank of XYZ will declare their fixed exchange rate to be 10:1 to the U.S.
dollar. This makes their debt outstanding is now worth five times less. It's a
very tricky maneuver with grave economic consequences.