Misalignment of currencies
Other Names: Exchange rate misalignment
Nature: Currency overvaluations and undervaluations have appeared repeatedly under the postwar regimes of both fixed and flexible exchange rates; have tended to grow rather than diminish; and may well reappear periodically even if the current regime is substantially reformed. Floating exchange rates tend to be accompanied by massive capital flows, resulting in large currency misalignments. These produce new protectionist measures in countries with overvalued currencies. In contrast to the initial assumptions of the Bretton Woods system, monetary flows have now come to determine trade flows rather than vice versa, and thus a country can find itself with a currency whose value in no way reflects its ability to compete in international trade, thus further exacerbating the uncertainty in the trading system and adding to the pressures for further protection.
Problem Type: F: Fuzzy exceptional problems
Date of last update 12.02.2000 – 00:00 CET