Devaluation of the currency.

A Devaluation Option for Southern Europe

The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

This reflected a decrease in real terms, due to inflation and the devaluation of the dollar.

This sharp devaluation increased further the cost of debt servicing and the debt to GDP ratio.

Many SMEs were unable to survive because of premature and sudden removal of protection and devaluation.

But, since none of these countries has a national currency to devalue, they must substitute internal devaluation for external devaluation. They have to cut wages, pensions, and other costs in order to achieve the same gain in competitiveness needed to substitute external demand for internal demand.

The logic is that a country like Greece needs devaluation to enhance its competitiveness, but that leaving the euro would pose major problems. The alternative would be to cut nominal wages ( internal devaluation), which is hard to do (though it has been achieved in Latvia and Ireland).

Vicious circles of economic instability, devaluation, and capital flight have brought down seemingly unbreakable regimes throughout history. This probably explains the whiff of panic that followed China s tiny, but totally unexpected, devaluation of the renminbi.

A slight devaluation would solve any remaining problem with export demand. This could be an explicit devaluation or an implicit one due to a price reduction, made possible by the reduction in unit production costs resulting from the extra working time at constant pay.

Currency devaluation policies to promote exports increased the costs of imported goods and made it increasingly difficult to service debt in dollars.

Of course, regaining the exchange rate as an instrument for competitive devaluation could help overcome competitiveness losses due to soaring unit labor costs. As Argentina showed after its default and devaluation in the winter of 2001 2002, such a move can reignite exports and economic growth.

Manifestations of discrimination include high instances of child and bonded labour, unequal pay, unemployment and emotional devaluation.

The situation of some countries had worsened recently as a result of the devaluation of their currency.

These are reasonable objections, but they should not be allowed to lead to unreasonable conclusions. The alternatives on offer are internal and external devaluation.

The higher cost of imported inputs due to devaluation and higher cost of credit due to liberalization measures have been prohibitively high for SMEs.

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If internal devaluation were the solution, the gold standard would not have been a problem in the Great Depression. Internal devaluation, combined with austerity and the single market principle (which facilitates capital flight and the hemorrhaging of banking systems) is a toxic combination.

First, devaluation would distribute the costs of rebalancing more evenly, making it easier to clear the burden sharing hurdle to deeper reforms. Second, floating exchange rates imply that devaluation is an automatic adjustment mechanism, so it occurs without the appearance of an explicit burden sharing choice and the accompanying potential for political gridlock.

In an era of unprecedented quantitative easing, competitive currency devaluation has become the norm for the world's major exporters first the US, then Japan, and now Europe. If China joined this race to the bottom, others would be tempted to escalate their actions and world financial markets would be subject to yet another source of serious instability.

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Thanks to U.S. stock market gains and yen devaluation overnight, Tokyo stocks opened higher on August 12, and Nikkei 225 Stock Average rose 1.10 .

I'm boning up on marine life since entomology doesn't seem to be your subject, and I'm eager to find a subject, Marnie, any subject.

Given these factors, it seems likely that the recent devaluation was driven by a different goal. And, in fact, an announcement made on the same day as the devaluation one that has been largely overshadowed by the panic offers an important indication of what that goal was.

For example, the devaluation of the CFA franc forced many Africans to emigrate because it caused a 50 per cent drop in their purchasing power.

The seminar was timely as the Thai baht had just been allowed to float freely and several South East Asian countries were experiencing currency devaluation.

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Economically, the BRICS are facing serious challenges. In addition to a well documented growth slowdown, China has lately experienced considerable stock market turmoil and currency devaluation.

So, if internal devaluation is to work, the value of debts, where they already represent a heavy burden, must be reduced. Government debt must be restructured.

Devaluation leads to a change in the relative prices of imports, which become dearer in the national currency, and exports, which become cheaper in foreign currencies.

Devaluation results in uniform price changes over the whole range of tradeable goods rather than for a selected number of products.

(g) ILO Tripartite Conference on the Socio Economic Implications of the Devaluation of the (CFA), Dakar (Senegal), 17 20 October 1994

The prevailing strategy in Europe remains simply to force internal devaluation on the southern countries, with excessive austerity aimed at causing severe wage and price deflation. While some internal devaluation is being achieved, it is producing so much economic and social dislocation and, increasingly, political upheaval that there is no supply response, despite the accompanying structural reforms.

the CFA franc region following devaluation Jean A.P. Clément, Aftermath of the CFA Franc Devaluation , Finance and Development (quarterly publication by IMF and the World Bank), vol. 32, No. 2, June 1995. and in Mexico after the January 1995 crisis Mr. Camdessus even went so far as publicly to express satisfaction at the sharp increase in unemployment in Mexico.

If one concentrates on trade liberalization and devaluation, the two main tools of SAPs which affect the performance of firms directly, one finds that there is no clear and systematic association between trade liberalization and devaluation, on the one hand, and growth and diversification of output and exports on the other.

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