Devalued Dollars And Deep Deficits

Abstract

Devaluating a country’s currency, according to long established theories, has two effects: it makes the country’s imported products more expensive and its exported goods cheaper, thus reducing imports and increasing exports, helping the country’s balance of trade. This paper examines the reasons why this theory did no have an effect on the US balance of trade, which for the last 30 years has been getting bigger every year, despite repeated devaluations of the dollar.