6.4.3—Depreciation vs appreciation

A currency appreciates when its market value rises against another currency; it depreciates when its market value falls. The meaning depends on the quotation used.

Appreciation can make imports cheaper in domestic currency and exports more expensive to foreign buyers. Depreciation tends to do the reverse, but the final trade effect depends on elasticities, contracts and the time taken to change quantities.

If £1 moves from $1.20 to$1.30, sterling appreciates against the dollar. If it falls to $1.10, sterling depreciates; a US-dollar input then costs more pounds, other things equal.

Do not call a currency “stronger” without naming the comparison, and do not infer a guaranteed trade-balance improvement from depreciation alone.