The Value of Being Undervalued
The importance of a competitive currency for economic growth is undeniable. But the burden of maintaining a favorable exchange rate cannot be borne by central banks alone.
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The paramount policy dilemma that emerging markets face nowadays is this: on the one hand, sustained economic growth requires a competitive (read “undervalued”) currency. On the other hand, any good news is immediately followed by currency appreciation, making the task of remaining competitive that much harder.