Examples of currency depreciation
Currencies are always traded in pairs, with the value of one being quoted against the other. The first listed currency – the base currency – is always worth one, while the second currency’s value – the quote currency – is given in relation to this.
For example, if GBP/USD was trading at 1.2700, this means that you would pay $1.27 for £1.00.
If the price of GBP/USD rises from 1.2700 to 1.5000, the dollar would be said to have depreciated in value, and the pound would have appreciated in value – as you would now need more dollars to buy the same number of pounds. This might also be referred to as the pound becoming stronger and the dollar becoming weaker.
Some real-life examples of currency depreciation include the impact of the 2016 Brexit referendum on the value of the British pound – which experienced significant volatility, and at times depreciated rapidly against the dollar. A more dramatic historical example happened in Asia in 1997, when the collapse of the Thai baht affected most Southeast Asian currencies and caused their value to decline sharply.