Global Macro Views: In Defense of Currency Devaluations

October 21, 2021

Large currency devaluations have a decidedly bad name, …
because they tend to be associated with chaos and disruption, …
even as the “dominant currency paradigm” clouds the lift to exports.
With EM currencies under continued pressure since COVID began in 2020, …
we update our earlier work on large devaluations and their impact on exports.
We survey all real and sustained devaluations in excess of 20 percent since 1980.
On average, export volumes receive a substantial boost across these episodes, …
while import volumes fall sharply early on, helping rebalance the current account.
As EM struggles to boost growth, currency devaluations are part of the solution.

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