In economics, a fall in a currency’s value relative to other currencies under a floating exchange rate is called currency depreciation.
Depreciation means the currency buys less of another currency than before. For example, if one unit of a country’s currency changes from buying two U.S. dollars to buying 1.5 dollars, it has depreciated against the dollar. Market forces such as changing interest rates, inflation expectations, trade flows, and investor demand can influence the movement.
Depreciation can make a country’s exports cheaper for foreign buyers and imports more expensive for domestic buyers. Its effects depend on contracts, trade patterns, production capacity, and how quickly prices adjust. It may also increase the domestic-currency cost of foreign debt.
Depreciation is different from devaluation. Depreciation usually refers to a market-driven fall under a floating exchange rate, while devaluation is an official reduction in a currency’s fixed or managed exchange-rate value. The opposite of depreciation is appreciation.