Devaluation and currency wars
How a weaker currency changes trade, and what happens when many countries try it at once
Reserve figures as on dates shown; episodes dated to source
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Open by asking: if a country's currency falls, who gains and who loses? Most will say 'exporters gain.' That is half the answer. This deck fills in the rest, and the history.
A country can cut its exports' foreign-currency price by letting its currency fall, with no home price cut.
That is the appeal of a weaker currency. The risk is that trading partners do the same to protect their own exports. A back-and-forth of this kind is called a 'currency war'.
Trainer notes
Keep the two halves in view: the gain to exporters, and the cost to importers and to partners. Nothing here says a weaker or stronger currency is good or bad.
Three terms to fix first
Devaluation
A deliberate cut in a currency's official value under a fixed or managed exchange rate. When a floating currency falls on its own in the market, that is called depreciation.
Beggar-thy-neighbour
A policy that helps your own economy by hurting trading partners, such as weakening your currency to take export share from them.
Currency war
When several countries weaken their currencies in turn to keep exports competitive. The phrase spread after Brazil's finance minister used it in 2010.
Source for the 2010 phrase: contemporary accounts of remarks by Brazil's finance minister, September 2010.
Trainer notes
Devaluation applies to a managed rate; depreciation to a floating one. India runs a managed float, so both ideas can apply at different times.
A weaker currency and the export price
ASSUMED FIGURES
A workshop makes a product for Rs 8,000 and sells it at that price at home.
Assume the rupee trades at Rs 80 per US$1.
- At Rs 80 per $1, the Rs 8,000 product costs a US buyer 8,000 / 80 = $100.
- The rupee weakens to Rs 100 per $1. The same product now costs the US buyer 8,000 / 100 = $80.
- The workshop still receives Rs 8,000. The home price has not changed at all.
- To the US buyer the price is 20% lower, so demand can rise, while rival exporters whose currency did not fall look higher-priced.
Result: A weaker currency can lift exports with no home price cut. That is the appeal, and the risk of a race.
Illustration with assumed figures and an assumed exchange rate. Not a forecast of any rate.
Trainer notes
The flip side: imports priced in dollars now cost more rupees, which can raise prices at home. A weaker currency helps exporters and raises import costs at the same time.
How a currency war gets going
Each step is a response to the one before. No single country has to intend a 'war' for one to form.
One currency weakens
Its exports are priced lower abroad while the home price is unchanged, so it can win market share from others.
Trading partners lose share
Their exports now look higher-priced by comparison, and their producers press the government for relief.
Partners respond in kind
They may ease policy to weaken their own currency, or step into the market to hold it down.
Or they reach for tariffs
Instead of moving the currency, a country can tax imports. In April 2025 the US declared an emergency and set a 10% baseline tariff on imports.
Source for the 2025 tariff: White House Executive Order 14257, 2 April 2025.
Trainer notes
The 2 April 2025 order is cited only as a documented event; the point here is the tool, not its legal status, which has changed since. Tariffs and currency moves are two routes to the same end: shielding domestic producers.
Four episodes on the record
| When | What happened | The lesson |
|---|---|---|
| 1992 | Speculators forced the pound out of Europe's exchange-rate mechanism on 16 September. | A fixed rate can break when markets bet against it. |
| 1997 | Thailand floated the baht on 2 July; several Asian currencies then fell sharply. | A peg defended with limited reserves can give way. |
| 2010-13 | Complaints of 'competitive' currency weakening; the phrase 'currency war' took hold. | Easy money in one country can spill into others. |
| 2015 | China reset its daily yuan fixing on 11 Aug: down about 1.9% that day, about 3.5% in two. | Even a managed currency can move sharply. |
Sources: documented accounts of the 1992 ERM crisis and the 1997 Asian crisis; the 2010-13 period; the PBoC's fixing change of 11 Aug 2015.
Trainer notes
The 1992 and 1997 cases are classic speculative attacks: markets bet against a rate the authorities were trying to hold. The 2015 move was a change in how China set the daily midpoint, not a one-off decree.
The renminbi since 2015
2015: a new fixing
On 11 August 2015 China changed how it set the yuan's daily midpoint, cutting it about 1.9% that day and about 3.5% over two days.
2016: into the SDR
On 1 October 2016 the IMF added the renminbi to the SDR, its basket of reserve currencies, the first new entry since the euro.
Today: a small share
The renminbi is about 2.1% of global FX reserves (Q2 2026) and carries a 12.28% weight in the SDR basket (2022 review).
Sources: PBoC fixing change, 11 Aug 2015; IMF press releases on SDR inclusion (2015-16); IMF COFER, Q2 2026; IMF SDR valuation review, 2022.
Trainer notes
The SDR is a reserve asset the IMF created; its value is set from a basket of major currencies. Being in the basket is a mark of international use, not a claim about the currency's level.
Where things stand
Reserve shares and official surveillance. These are statistics, not market prices.
- US DOLLAR
- 56.7%US dollar share of global FX reserves, Q2 2026 (IMF COFER).
- RENMINBI
- 2.1%Renminbi share of global FX reserves, Q2 2026 (IMF COFER).
- INDIA RESERVES
- $741BIndia's foreign exchange reserves, week to 28 Aug 2026 (RBI).
- US WATCH LIST
- 10Economies on the US Treasury currency monitoring list.
Sources: IMF COFER release, 30 Sep 2026; RBI Weekly Statistical Supplement (week to 28 Aug 2026); US Treasury FX report to Congress, 23 Jul 2026.
Trainer notes
The US dollar is still the largest reserve currency by far. India holds large reserves partly to smooth sharp moves in the rupee. The US watch list named no manipulators in the latest report. Refresh these when new releases appear.
If you learnt this from older material
What older decks say
- Most currencies are pegged, so a government sets the rate by decree.
- The rupee is quoted near 50 to 60 per US dollar.
- China pegs the yuan tightly to the US dollar.
What holds now
- The rupee and many others float, managed by the central bank, not fixed by decree.
- The rupee trades much weaker now; live rates change daily, so we do not quote a level.
- China manages the yuan around a daily fixing; it has been in the IMF's SDR basket since 2016.
Take-away: The tools have shifted too: in 2025, tariffs, not only currencies, were in the headlines.
Sources: IMF (SDR inclusion, 2016); White House Executive Order 14257 (2025).
Trainer notes
Older material was written when more currencies were pegged and the rupee was much stronger in number. We never quote a live exchange rate in a public deck; it is market price data.
Four things people get wrong
Misconception'A weak currency is always a good thing.'
What is trueLower-priced exports come with higher import prices and imported inflation. It helps some and hurts others.
Misconception'Devaluation and depreciation are the same.'
What is trueDevaluation is a deliberate cut under a fixed or managed rate. Depreciation is a market fall of a floating rate.
Misconception'A currency war has clear winners.'
What is trueIf everyone weakens together, the relative gains largely cancel out and trade tensions can rise.
Misconception'Only small economies get attacked.'
What is trueA major currency was forced out of Europe's exchange-rate system in 1992. Size is no guarantee.
Source: documented accounts of the 1992 ERM crisis (Bank of England; IMF).
Trainer notes
The deepest point is the last-but-one: a currency war can leave everyone roughly where they started on exchange rates, but worse off on trade friction and inflation.
Check yourself
Question 1: A product costs Rs 8,000 at home. The rupee moves from Rs 80 to Rs 100 per US dollar. What does it now cost a US buyer, and did the home price change?
Answer: It costs 8,000 / 100 = $80, down from 8,000 / 80 = $100, a price 20% lower for the US buyer. The home price is unchanged at Rs 8,000; only the exchange rate moved.Question 2: What is the difference between devaluation and depreciation?
Answer: Devaluation is a deliberate reduction in a currency's value under a fixed or managed exchange rate. Depreciation is a fall in a floating currency's value driven by the market. Both lower export prices abroad.Question 3: Why is a 'currency war' often described as having no clear winner?
Answer: If many countries weaken their currencies at once, the changes partly cancel out, so no one gains a lasting edge on exchange rates. What can remain is higher import costs, inflation and trade tension. Tariffs can follow as another tool.
Sources and disclaimer
Sources for the figures in this explainer
- 'Currency war' popularised by Brazil's finance minister, September 2010: contemporary news accounts of the remark.
- 1992: the pound forced out of the European exchange-rate mechanism on 16 September; 1997: Thailand floated the baht on 2 July: documented accounts of both crises.
- 11 August 2015: China changed the yuan's daily fixing, cutting it about 1.9% that day and about 3.5% over two days: reports of the PBoC fixing data.
- Renminbi added to the IMF's SDR basket effective 1 October 2016 (decision 30 Nov 2015); SDR weight 12.28% (2022 review, effective 1 Aug 2022): IMF press releases.
- US dollar 56.7% and renminbi 2.1% of global FX reserves, Q2 2026: IMF COFER release, 30 Sep 2026.
- India's reserves about $741bn, week to 28 Aug 2026: RBI. US currency monitoring list of 10 economies, no manipulators: US Treasury FX report, 23 Jul 2026.
- 2025 tariffs: White House Executive Order 14257 of 2 April 2025 (10% baseline tariff under IEEPA). All figures in the worked example are assumed.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).