1 thought on “IEA Debate: Should we devalue the pound?”

  1. Posted 11/09/2020 at 23:17 | Permalink

    I have also debated this with John at length before. A country cannot in the medium term control its real exchange rate. Any attempt to reduce the nominal exchange rate will simply lead to higher domestic prices. The exchange rate is a function of private and public sector decisions, including in relation to savings and investment.

    Furthermore, I am not sure why John focuses on manufacturing which is basically an irrelevance, but our share of world trade in total has fallen somewhat. But that is not surprising. World trade was rising for much of the period at twice the rate of world GDP and, obviously, world GDP grows much faster than UK GDP.

    Even if John’s arithmetic was relevant, it does not add up. The 2% growth rate would only apply to the 8% of the economy that is manufacturing. And then, when the sales were repatriated, the £s would buy 20% less abroad making us all a lot poorer. John wants to be able to earn 20% more £s from exporting (which he would not anyway because of domestic inflation) but then the £s are not worth as much when we spend them on imports.

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