Competitive Devaluation

Definition Competitive Devaluation

When a country tries to devalue its currency to increase its international competitiveness. However, this often encourages other countries to also devalue leading to only temporary increases in the competitiveness of exports.

In competitive devaluation, a country only gains a temporary advantage until the next country devalues as well.

Devaluation can often lead to inflation which reduces long term gains in competitiveness.