An economic cure that risks being worse than the disease ther.
Turbocharged shifts of global capital have sown booms and busts around the world in recent years, often leading to prescriptions of ‘internal devaluation’ to help economies regain the kind of growth their banking and welfare systems require.
The term is shorthand for a technique invented in Scandinavia during financial crises there in the 1990s, to reduce the cost of doing business so that a struggling economy can export its way back into solvency. It is an alternative to ‘external devaluation’ – reducing the value of a currency, which also helps boost exports.
Deliberate currency depreciation has fallen out of fashion as the globalization of trade, credit and supply chains intensified in recent decades, and was seen as an unfair shortcut that threatened to ignite so-called ‘currency wars’.
When military rhetoric is invoked, blood pressure rises and opinions proliferate. Internal devaluation is seen by some as a thinly-disguised attack on wages and by others as a sacrosanct belt-tightening exercise. That is, either as a tragic policy mistake leading to falling demand and deeper recessions or a painful but necessary method of putting national finances back on track.
The call for robust internal devaluation has been particularly evident in Europe, where the pooling of monetary sovereignty within the euro leaves the internal approach as the sole strategy available.
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An economic cure that risks being worse than the disease ther.
Turbocharged shifts of global capital have sown booms and busts around the world in recent years, often leading to prescriptions of ‘internal devaluation’ to help economies regain the kind of growth their banking and welfare systems require.
