Boris Lvin (bbb) wrote,
Boris Lvin

У коллег из ЮНКТАД совсем крыша поехала

In any case, exchange rate changes are necessary to compensate for the opening scissor blades of the price and cost developments between a high-inflation and a low-inflation country. As long as developing countries are not able to perfectly converge in nominal terms with the developed countries, devaluations are unavoidable in order to preserve the competitiveness of the high-inflation countries. However, exchange rate changes, and in particular, real exchange rate changes, that determine the competitiveness of the whole economy, cannot be left to the market. Given the arbitrage opportunities between high- and low-inflation countries, a rule of competitive neutrality of the exchange rate, like the PPP rule, has to be enforced by governments and/or central banks. Ideally, such a rule should be the result of multilateral agreements, as exchange rate changes always have multilateral repercussions. But if the international community is not able to agree on rules to avoid competitive devaluations and huge destabilizing shocks, countries will continue to manage the floating of their currencies unilaterally.

Managed floating, however, faces an adding-up problem on the global scale. Not all countries can simultaneously manage the movements of their exchange rate and achieve their targeted rates. The exchange rate, by definition, is a multilateral phenomenon, and attempts by many countries to keep their currencies at an undervalued rate may end up in a race to the bottom - or in competitive devaluations - that would be as harmful for the world economy as in the 1930s. Moreover, given the size of international short-term capital flows and the inherent volatility of these flows, only those developing countries that are big and competitive enough to withstand strong and sustained attempts of the international financial markets to move the exchange rate in a certain direction will be able to manage the floating successfully. A small and open developing economy will hardly be able to continue fighting a strong tendency to appreciate over many years or even decades.

Multilateral or even global arrangements are clearly the best solutions to this problem. The idea of a cooperative global monetary system would be to assure, on a multilateral basis, the same rules of the game for all parties involved, more or less in the same way as multilateral trade rules apply to every party equally. That is why the main idea behind the founding of the International Monetary Fund in the 1940s was to avoid competitive devaluations. In a well-designed global monetary system, the need and the advantages of the currency depreciation of one country have to be balanced against the disadvantages to the others. As changes in the exchange rate, deviating from purchasing power parity, affect international trade in exactly the same way as changes in tariffs and export duties do, such changes should be governed by multilateral regulations. Such a multilateral regime would,among other things, require countries to specify their reasons for real devaluations and the dimension of necessary changes. If such rules were strictly applied, the real exchange rate of all the parties involved would remain more or less constant, as strong arguments for creating competitive advantages at the national level would rarely be acceptable.

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