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Economic and Financial Committee
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Cite as https://mymun.com/ppdb/6486

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Samuel Paccia-Folkins - Letizia Vicentini

University Of East Anglia

Topic 1: Competitive Currency Devaluation

Competitive devaluation refers to a scenario in which an abrupt national currency devaluation by one nation is matched by a currency devaluation of another, especially if they both have managed exchange-rate regimes rather than floating exchange rates determined by market forces. Competitive devaluation is considered a “beggar-thy-neighbour” type of economic policy, since it amounts to a nation trying to gain an economic advantage without consideration for the ill-effects it may have on other countries. Currency devaluation has its short-term economic appeal, as has been proved during the Great Depression. There are a number reasons why a government may devalue its currency. One of these reasons may be that there is a large foreseeable trade deficit in the country. Depreciation makes the domestic currency cheaper relative to other currencies in the world. As a result, the country’s exports are relatively cheaper for foreigners. This means that the country’s exports will be favoured and exports will increase. Devaluation may also lead to a decrease in unemployment, as a larger workforce is needed to produce the goods to be exported and produce the goods that will no longer be imported. However, its long-term effects on the domestic prices and international markets are much more disruptive. Through globalization, such effects are further accentuated. The world's emerging economies are allowing their currencies to slide in a quest to remain competitive, following China's devaluation of the yuan and the dollar's strength in anticipation of US rate hikes. Other factors, including slumping pric...

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