THE EDITOR: Last week Finance Minister Colm Imbert indicated that the Government had absolutely no intention of devaluing the dollar. This stance taken by the Government throughout its tenure so far is quite a commendable one.

Even though there are minimal advantages to currency devaluation, our economy in no way requires such a drastic measure at this time. While currency devaluation is a well-known monetary policy instrument, not everyone is aware of its most apparent effects.

According to iBanFirst, a global financial services provider, currency devaluation can present significant drawbacks, ranging from more expensive imports to higher inflation, as well as a decline in local consumer purchasing power.

It can also result in less efficient and less competitive domestic industries in the medium term. The price of imports increases and consumer purchasing power decreases on the whole.

In a period of stagnant wage growth, devaluation can cause a fall in real wages. This is because devaluation causes inflation, but if the inflation rate is higher than wage increases, then real wages will fall.

Also, local industries are supported by the higher price of imported products. As there is less external competition, some industries are likely to become less productive and less efficient in the medium term.

Devaluation, unlike depreciation, is a voluntary decrease in the value of one currency relative to others. It is a well-known monetary policy tool, but the extent of its disadvantages is sometimes glossed over and we the average man on the street should be aware of it's effects.

NIGEL SEENATHSINGH

San Fernando

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