Depreciation of Currency:  Let us start with the  meaning of the term depreciation of the currency. Depreciation of currency happens in those currencies which are linked to  floating exchange rate and it is likely to change / vary on day to day  basis (in actual practice popular currency rates change almost every few minutes / seconds).   A floating exchange rate means that the global investment market determines the value of a country's currency.   These countries allow supply and demand to determine the value of their currency relative to the currencies of other countries.  Depreciation occurs when the forces of supply and demand cause the value of their currency to drop.   To check the high volatility, as a prudent measure, almost all central banks of the respective countries try to influence the exchange rates through various means so as to curb such volatility, yet  in the end it is the free market that determines the exchange rate of all the currencies linked to floating exchange rate.   These days all major economies use a floating exchange rate.   Thus,  Appreciation / Depreciation  (only marginal change) of all such  currencies regularly  occurs number of time during the period market remains open.. It is only in rare cases, that currency depreciates or appreciates by a wide margin.   Such changes happen if something major happens on economic / political front of such country or in the global markets.   If a country’s currency has depreciated it will mean that this country's money has less purchasing power in other countries because of the depreciation.

Devaluation of Currency : Devaluation of a currency happens in countries with a fixed exchange rate (or also where it is managed floating rate). In a fixed-rate economy, it is the government that decides what its currency should be worth compared with that of other countries. In this case, usually the government pledges to buy and sell as much of its currency as needed to keep its exchange rate the same.  The exchange rate can change only when the government decides to change it.   If a government decides to make its currency less valuable, the change is called devaluation.

In cases where a country’s economy is NOT performing good, and its government does not allow free rate mechanism, the country’s currency will look strong only on paper and its economy will suffer more as it will not be able to export at inflated price of the currency.   Slowly a day comes when the government is forced to devalue its currency so as to make it more tuned to the realities of the FEX rates.

What is the impact of depreciation or devaluation of the currency on economy of the country:

Broadly speaking both have similar impact in the short term.  Both of these (i.e. depreciation or devaluation) help the companies which are exporting goods as a drop in the value of the home currency allows the other countries to import goods at a cheaper price from the country whose value has depreciated / devalued.   Thus, exports from country whose currency has devalued / depreciated are likely to increase.   On the other hand, the citizens will find it costly to buy goods which are imported from other countries as such goods  will become costly.   Thus, this is likely to benefit the economy to remain competitive in the international market.    These events are good for companies that sell the goods produced from domestic raw material,  and also to companies that export to other countries.

A drop in home currency exchange rate makes it more expensive for local  people to buy goods from other countries, as import of such goods becomes costlier after depreciation / devaluation.  Thus, they will either buy more goods manufactured by domestic companies  or reduce their consumption of goods from abroad.

Long Term Impact of  Depreciation or Devaluation of the Currency :

Depreciation of the currency is a slow process and value of the currency automatically gets adjusted by the market forces.  Thus, once the currency of a country has depreciated, the investors from other countries  will see an opportunity and are likely to shift from other economies.   This will help in boosting the economy which may in the long run even push back the value of the currency.  

On the other hand in case of devaluation, there is less trust in the economy and once currency is devalued, Government finds it very difficult to revalue the same by government dictate as there will be fear that such revaluation can backfire and put the economy in risk mode.

Devaluation of Yuan (China’s currency) in August 2015:

Now let us try to understand the difference in these two terms on the basis of recent happenings in the FEX market :-

It was in the mid August 2015, that China in a surprise move devalued Yuan by about 3.5% over a period of three days.   This sent jitters across world stock markets and FEX markets.   It sent signals to the global markets about the continued weakening of the China’s market, and its desperate move to remain competitive in export market as exports have started declining since last few quarters.    We know China is the world's largest exporter and its exports formed 13.7% of the global exports and close to one-and-a-half times United States' exports last year.  Thus this move to devalue is currency (Yuan) is a move to boost its exports and continue its share in export market.   Thus, here the value of the currency of China dropped on account of measures of Government.  This is called devaluation.

However, soon after the announcement of devaluation of Yuan, FEX markets across the world started readjusting the prices of currencies which are linked to floating exchange rates.   Indian Rupee two depreciated by about 3% immediately.  Thus there was depreciation of INR.    Although there was no direct devaluation by Indian Government, but INR depreciated  due to market forces which have changed after the announcement of devaluation of Yuan by China.