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The devaluation

In: The International Monetary System and the Theory of Monetary Systems

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Abstract

A devaluation is a change of the exchange rate decided by monetary authorities in an exchange rate system in which the exchange rate ought to be fixed. The consequences of a devaluation are different according to the initial situation when it is decided. If there is initially a monetary equilibrium, the devaluation creates a disequilibrium and an adjustment takes place mainly thanks to international monetary flows. If there is an initial disequilibrium, it is generally because monetary authorities in a country have not been respectful of the normal ‘rules of the game’ of a fixed exchange rate system, according to which the central bank should adjust its monetary policy to changes in its reserves of foreign currency (or gold, in a gold standard). In such a case a devaluation is intended to cure the disequilibrium, at least if the new exchange rate can be considered as an equilibrium exchange rate.

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  • ., 2016. "The devaluation," Chapters, in: The International Monetary System and the Theory of Monetary Systems, chapter 19, pages 168-174, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:17285_19
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    Economics and Finance;

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