The devaluation

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Chapter 19 in The International Monetary System and the Theory of Monetary Systems, 2016, pp 168-174 from Edward Elgar Publishing

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.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2016
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