It is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. When the price to buy particular currency falls, also decreases the real price of exports of the country; in turn, imports become more expensive, so the domestic industry and therefore employment gets a boost in both domestic and external demand. However, the increase in the price of imports can hurt the purchasing power of citizens. The policy may also trigger retaliation by other countries, in turn, can lead to a general decline in international trade, a decrease that would affect all countries.
Competitive devaluation has been rare throughout most of history as countries have preferred, usually maintain a high value for their currency; have been content to allow its value to be set by the market or have participated in the exchange rate systems of managed float. An exception was the episode of currency war which occurred in the 1930s is considered that this period has been an adverse situation for all concerned, since all participants suffered when international trade was reduced due to unpredictable changes in the interchange fees.
