In international economics, the deliberate lowering of the value of a country's domestic currency relative to a foreign reference currency under a fixed or managed exchange rate system is called what?

Introduction / Context:
Dealing with exchange rates is a central part of international economics and international trade policy. One important concept is what happens when a government or monetary authority deliberately lowers the external value of its domestic currency relative to a foreign reference currency. This question is testing your understanding of the precise term used for this deliberate policy action, which often appears in discussions about balance of payments, export competitiveness, and exchange rate regimes.

Given Data / Assumptions:

• The focus is on a deliberate policy action related to the value of a domestic currency.
• The change is relative to a foreign reference currency or a basket of currencies.
• We are considering a fixed or managed exchange rate framework, not a purely free float.
• We need the correct technical term used in macroeconomics and international finance.

Concept / Approach:
In a fixed or pegged exchange rate system, the authorities can adjust the official parity of the domestic currency. When they reduce the value of the domestic currency in terms of foreign currency, this is called devaluation. When they raise the value of the domestic currency, this is called revaluation. These terms differ from depreciation and appreciation, which usually refer to market driven changes in a flexible exchange rate system rather than a deliberate policy decision.

Step-by-Step Solution:
Step 1: Identify that the change described is a deliberate policy decision, not a market fluctuation. Step 2: Recognize that the value of the domestic currency is being lowered relative to a foreign reference currency. Step 3: Recall the terminology: in a fixed exchange rate system, a deliberate lowering of the domestic currency is called devaluation. Step 4: Match this definition to the options provided and select the correct term.

Verification / Alternative check:
A quick way to verify is to remember that devaluation is often used by countries to make exports cheaper and imports costlier, in the hope of improving the trade balance. Revaluation does the opposite by making the domestic currency stronger. If the question had been about a market driven fall in the currency in a floating regime, the correct term would be depreciation, not devaluation.

Why Other Options Are Wrong:
Revaluation: This refers to raising, not lowering, the official value of the domestic currency under a fixed exchange rate system, so it is the opposite of what is described.
Down valuation: This is not a standard, widely accepted technical term in macroeconomics textbooks for this policy. It sounds similar in ordinary language but is not the precise concept tested in exams.
Negative valuation: This has no standard meaning in exchange rate theory and does not describe the deliberate lowering of the currency value.

Common Pitfalls:
Students sometimes confuse devaluation with depreciation and revaluation with appreciation. Remember that devaluation and revaluation are associated with official government or central bank actions under a fixed or managed exchange rate. Depreciation and appreciation are usually market driven changes under a flexible system. Another pitfall is picking a vaguely similar sounding term instead of the precise textbook concept.

Final Answer:
The deliberate lowering of the value of a domestic currency relative to a foreign reference currency under a fixed or managed exchange rate system is called devaluation.