IMF Study Finds a 10% drop in Currency Can Boost GDP by 1.5%

A 10% fall in the value of a nation’s currency can boost exports by an average 1.5% of GDP, according to a study by the International Monetary Fund that reveals the benefits of a cut in the exchange rate for foreign trade.

Heightening fears that the global economy is likely to suffer a new round of currency wars, the report said global trade was still dominated by the export of goods such as cars and fridges that sold better after a cut in the exchange rate made them cheaper.

The report forms a key element of the IMF’s world economic outlook, which is due to be published next week when the global lender of last resort holds its biannual meeting in Lima.

Concerns that some of the world’s major nations ducked reforming their economies by opting to devalue their currencies in a desperate dash for trade-driven growth has dogged the debate over the global recovery.

Governments stand accused of embarking on currency wars to defend export industries that would be priced out of global markets without the support of an artificially low exchange rate.

Shinzo Abe, the Japanese prime minister, made it a central plank of his manifesto to improve exports by driving down the value of the yen. He drafted in a new central bank chief, who embarked on a massive programme of electronic money printing similar to the quantitative easing programmes adopted by the Bank of England and US Federal Reserve. The IMF said the yen has fallen by 30% since mid-2012 against a basket of currencies.

via The Guardian

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