The Question is Not Whether "To Devalue or Not to Devalue?" But Rather "What to Devalue?"

Peer Reviewed icon Peer Reviewed
Date issued
Oct 2013
Subject
Monetary Policy;
Investment
JEL code
E62 - Fiscal Policy;
F32 - Current Account Adjustment • Short-Term Capital Movements
Category
Policy Briefs
In this policy brief, we review the problem of a lack of competitiveness and the policy options to improve competitiveness and hence promote economic growth. Inadequate competitiveness can be measured as a sustained current account deficit of the balance of payments. We discuss the advantages and disadvantages of three devaluation policy options: an external devaluation, an internal devaluation, and a fiscal devaluation. We conclude that the latest fashionable option, fiscal devaluation, offers gain with no pain but detailed country-specific simulations are needed to determine which option is the better one.