The Effect of Revaluation on Business
Revaluation refers to an official upward change in the country’s currency, relative to other currencies. The government may institute revaluation to reduce an account surplus (in cases where exports are more than imports) or to manage inflation. Revaluation has various impacts on businesses, including high rates on property businesses, trade imbalances, increased energy prices and changing inflation rates.
Property taxes are charges on commercial or non-domestic property. The government periodically adjusts the rates so that they are in line with current economic conditions. The value of a property changes with time; some increase while others decrease. Since owners pay taxes in accordance with value, revaluation ensures that there is fairness in paying property tax. Currency revaluation may lead to inflation, which then leads to an increase in the costs associated with property value, such as electricity bills. Low consumer spending, high rent and rising overhead make trading conditions difficult for property businesses, reports the Institution of Commercial & Business Agents.
Revaluation of a currency is likely to cause trade imbalances. As observed in China’s case, revaluation of the Renminbi, or RMB, led to a decline in demand for China’s exports. The decline is because formerly cheap goods become expensive after revaluation of the exporting country’s currency. On the other hand, revaluation of the RMB could lead to the preference of products manufactured in other countries.
Appreciation of other currencies against the U.S. dollar leads to significant increment of oil prices. This is because when the U.S. dollar weakens against other currencies, such as the Chinese Yuan, oil-exporting countries get less from oil exports. To counter the losses, oil-exporting countries increase the price of oil. This implies that the revaluation of Asian or European currencies will lead to an increase in the price of energy products derived from oil.
Revaluation of currencies can cause either high inflation or low inflation. If the exporting country’s currency revaluates, demand for its goods will decrease, thereby leading to high inflation. Cheap imports from Asian countries kept inflation in the U.S. in check, but revaluation of Asian currencies increased the rate of inflation, as imports became more expensive. Conversely, if the importing country’s currency revaluates against the exporting country’s currency, low inflation may occur because of availability of cheap imports.