Currency depreciation happens when the market value of a currency decreases compared to other currencies in an exchange system that allows for fluctuations.

When a currency loses value, it becomes cheaper to buy. This leads to the following effects:

• Exports become more affordable and competitive for foreign buyers.
• Imports become more expensive for local consumers and businesses.

While this can help a country sell more goods abroad, it may also increase inflation because the cost of importing raw materials and goods from other countries rises. Depreciation functions similarly to devaluation, but it is determined by market forces rather than government policy.