Saturday, 14 November 2009

Currency devaluation is no magic bullet

"Mervyn King, the Governor of the Bank of England, was at it again this week. The fall in the exchange rate over the past two years, he said, will help smooth what he characterised as a necessary rebalancing of the economy, away from consumption and towards exports.His remarks were reminiscent of past currency crashes under Labour. Remember Harold Wilson? "It does not mean," he said, when he announced a 14 per cent devaluation, "that the pound here in Britain, in your pocket or purse or in your bank, has been devalued. What it does mean is that we shall now be able to sell more goods abroad on a competitive basis." Nobody was fooled then, and it would be unwise to rely on that idea this time, either."

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