It is two forms of exchange rate changes under the fixed exchange rate system.
Under this system, the government sets the value of money by the legal gold content, which is the so-called legal parity. Value-added means that the government raises the gold content of its own currency and lowers the foreign exchange rate through decrees. So it is also called legal appreciation; Devaluation means that the government reduces the gold content of its own currency and increases the foreign exchange rate through decrees, so it is also called legal devaluation.
Up (appreciation) and down (depreciation)
It is two forms of exchange rate change under the floating exchange rate system, in which the currency exchange rate changes with the change of supply and demand.
When the supply of foreign exchange exceeds the demand, its exchange rate will rise from bottom to top, which is called floating, that is, the appreciation of the country's currency.
When the supply of foreign exchange exceeds the demand, its exchange rate will decrease from top to bottom, which means that the country's currency depreciates. If China's currency continues to appreciate, it will affect the exchange rate fluctuation.
Overestimating and underestimating.
Refers to the currency exchange rate is higher or lower than its equilibrium exchange rate.
Overestimation: Assume that under the fixed exchange rate system, international transactions are kept at Eo level at the official exchange rate (Eo is expressed by direct quotation). When a country's balance of payments is in deficit, the relationship between supply and demand in its foreign exchange market will change. (See the figure above) The foreign exchange supply curve moves to S' (the foreign exchange supply decreases relatively), or the foreign exchange demand curve D moves to D' (the foreign exchange demand increases relatively). The part where foreign exchange supply is less than demand is OG, and the equilibrium point of supply and demand rises from O to O'. The new equilibrium exchange rate is E 1. If the official exchange rate remains unchanged, the national currency is overvalued, or the value of the national currency should be reduced rather than reduced.
Underestimation: When a country has a surplus in its balance of payments, the change of supply and demand in its foreign exchange market is shown in the following figure. The foreign exchange demand curve D moves to the left to D' (the foreign exchange demand decreases relatively), or the foreign exchange supply curve S moves to the right to S' (the foreign exchange supply increases relatively). The oversupply of foreign exchange is OG, and the equilibrium point of supply and demand has dropped from O to O'. The new equilibrium point is E 1. If the official exchange rate is still fixed at Eo, it means that the domestic currency is undervalued, or the domestic currency should appreciate rather than appreciate.