Monetary Policy

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Monetary Policy

Effects of a one-time devaluation

Devaluation provides both opportunities and problems for governments. One effect of a one-time devaluation is to allow the central bank to replenish its foreign exchange reserves. Devaluation often happens when the fixed rate is no longer tenable.Monetary Policy However a one-time devaluation may trigger speculation among the foreign exchange market participant. When this happens, the initial devaluation may not increase its foreign exchange reserves. This is due to a myriad of factors.

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Willman, A. (1989). Devaluation expectations and speculative attacks on the currency. The Scandinivian Journal of Economics Vol. 91(1), 97-116.