- A currency revaluation ("reval") is when a government officially increases the value of its pegged currency.
- Revaluations have been historically rare and generally modest.
- Devaluations are far more common, and investing in a devalued currency with hopes of a dramatic revaluation is speculative and high risk.
In this article, we will tackle one of the most enduring topics of interest to our customers: currency revaluations.
An important note before we begin: SafeDinar.com is not an investment service or advisor. Readers should not infer any financial advice from this article or anything else we write.
With that out of the way, let's dive in.
Exchange Rates 101
Let's begin by clarifying how exchange rates work.
In the simplest terms, an exchange rate is the price of using one country's currency to purchase another country's currency. In practical terms, it is usually a particular currency's value in relation to the US dollar.
While most advanced economies use a "floating" exchange rate determined by supply and demand, developing countries often use "fixed" or "pegged" exchange rates tied to historically stronger currencies (like the US dollar). For example, the US dollar, euro, Japanese yen, and Brazilian real are all floating currencies, while the Iraqi dinar and Vietnamese dong are pegged to the US dollar.
For developing countries, the benefits of a pegged currency are significant: it mitigates risk, facilitates trade, and can help expand their markets. Most pegged currencies are not "hard" pegs enforcing a set relationship from one currency to another, but "soft" pegs that allow for government intervention and slippage over time between the two rates.
Unsurprisingly, the US dollar and euro are popular currencies to peg to, with some developing countries choosing to peg to nearby large economies (such as Nepal to India) or a composite of different currencies (China being the most notable example).
Regardless of the exact approach taken, pegged exchange rates mean that only the country's government or monetary authority (such as a central bank) can make changes to the currency's official value. Put another way, market forces alone don't make the value of a pegged currency move up or down.
Because currency is first and foremost a means of translating the value from one thing into another, exchange rates act as the essential glue between currencies. Without them, nothing resembling our global financial system would be possible.
What Exactly Is a Currency Revaluation?
A currency revaluation (informally known as a "reval" or "RV") is an increase in the exchange value of a country's monetary unit in terms of another currency. More specifically, it is when a government or monetary authority increases the value of its pegged currency.
A revaluation is not a gradual change in a currency's value, or a shift in value determined by market activity (that would be appreciation/depreciation). It is only when a government or monetary authority increases the exchange value of its own currency.
Generally speaking, revaluations have been rare, with devaluations (and depreciation as a whole) being far more common across recent history. Let's investigate.
What Would a "Reval" Look Like?
If revaluations are so rare, why is there so much persistent speculation around them?
As with most matters of speculation, there is at least some historical basis.
The often-cited story of Kuwait's currency in the early 1990s provides useful insight. During the Iraqi invasion, Kuwait's currency was plundered by invading forces, sending it plummeting in value. Once restored to power, the Kuwaiti government retired its former currency and issued a new one, allegedly to prevent the Iraqi invaders from enriching themselves on stolen cash. The value of the new currency was essentially identical to the favorable, pre-invasion rate. And because bank records were fundamentally intact, the government was able to return the bank accounts of Kuwaitis back to pre-invasion levels (with the new currency).
Close readers will notice that this example isn't actually a revaluation: it's the story of how one currency was retired and another was introduced. It's also a tragic story about everyday Kuwaiti people seeing their informal cash savings devalued to nothing.
Nevertheless, the story has taken hold in the popular imagination, standing in for the idea that it is at least plausible for a country's currency to dip dramatically in value, only to suddenly be "revalued" at a much higher amount. But as we've seen, this simplification ignores the fact that in Kuwait, an entirely new currency was issued, while the original currency was simply retired. The value of the old banknotes went down — to nothing, in fact — not up.
In reality, true revaluations have been far more modest. For instance, the Chinese government announced a 2.1% revaluation of its currency against the dollar in 2005 (it also moved from a dollar peg to a "reference basket" of currencies). Over the next three years, the currency appreciated an additional 19% in accordance with the country's economic growth. There was no exponential rise in the value of the currency, and the revaluation itself was highly modest.
Other historical anomalies like the 1971 Smithsonian agreement yielded similarly modest revaluations. In short, it is difficult to come up with a single, clear example of a massive currency revaluation in recent history.
Devaluations: Far More Common, Far Less Exciting
Let's turn now to a far more frequent occurrence across history: currency devaluations.
As you've likely guessed, a devaluation is an official downward reset of a currency's value under a fixed-rate monetary system — the exact inverse of a revaluation.
Notably, this differs from depreciation, in which a floating currency simply drops in value due to supply and demand. Although the effect on people's lives is functionally the same — they can buy less with the same amount of money — a devaluation is typically studied as a subtype of depreciation.
The classic devaluation example is Zimbabwe. After struggling for decades with drought and famine-related inflation, Zimbabwe's currency woes went into overdrive during the Great Recession, leading to the notorious 100 trillion-dollar note in 2008. A year later, the Reserve Bank of Zimbabwe devalued the currency by knocking an astounding twelve zeroes off its value to the US dollar, and eventually pursued full-on demonetization.
Today, the Reserve Bank issues the Zimbabwe Gold (ZiG), but the vast majority of transactions are conducted in US dollars, and the country intends to remain on a multi-currency system for some time.
Elsewhere in the world, recent devaluation examples include Egypt in 2016 (-32%) and Argentina in 2023 (-50%+).
The Bottom Line About Reval Hype
We hope this article has made plain that investing in a devalued currency with hopes of revaluation is highly speculative and should be considered extremely high risk. This is especially important in the face of myriad currency scams that only grow more prevalent over time.
What do we at SafeDinar.com think? As mentioned, we do not and have never dispensed investment advice or even inferred advice, and that remains a core principle of our business. We're not financial advisors, investment experts, or securities traders. If you have ever come across information claiming to be from us that suggests otherwise, it is absolutely fake.
What do we actually offer? It's simple: safe, fast, and seamless transactions with 60+ currencies, most of which aren't available at your local bank. We're far cheaper than airport kiosks, enabling travelers to obtain currency before they arrive at their destination country. Most importantly to us, we pride ourselves on exceptional service.
Where to Go From Here
It's worth taking a moment to consider what brought you to this page: have you gotten caught up in revaluation hype? Are you simply curious, or are you lured by the potential for a get-rich-quick scheme?
Regardless of how you got here, you now have all the facts pertaining to revaluations as we understand them. We hope you found this article informative, and encourage you to conduct your own thorough due diligence before proceeding with any currency-related transactions.
