Definition Competitive Devaluation When a country tries to
devalue its currency to increase its international
competitiveness. A devaluation in the exchange rates makes the
foreign price of exports lower, and imports become more
expensive. Therefore, a devaluation increases the volume of
exports and reduces import demand. This devaluation should lead
to an increase in domestic demand and economic growth. However,
if one country devalues, others will see an appreciation in
their exchange rate, making their exports more expensive.
Therefore, this encourages other countries to also devalue to
retain their competitiveness. In a global recession, with low
economic growth, several countries may be trying to devalue to
improve competitiveness. Devaluation may lead to only a
temporary increases in the competitiveness of exports.
Devaluation can often lead to inflation which reduces long term
gains in competitiveness. - Competitive devaluation and currency
wars - Is it harmful or beneficial to devalue during a global