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Alasdair Macleod: Managing trade deficits
By Alasdair Macleod
GoldMoney.com, St. Helier, Jersey, Channel Islands
Thursday, June 25, 2015
Currency devaluation is seen by nearly every macro-economist to be the cure for trade deficits.
Recently they have recommended it to Greece, arguing for the reintroduction of the drachma so that the Greek economy can become "competitive" and "rebalanced." This widespread assumption is easily demonstrated to be incorrect.
Empirical evidence confirms the error: In the post-war years Germany and Japan were the strongest exporting nations despite persistent rises in their exchange rates, and the UK consistently the weakest, despite the sought-after benefit of sterling depreciation. Hong Kong dropped currency management entirely in favor of a currency board tied rigidly to the US dollar, and despite having to import everything, managed very well. ...
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