Surjit S. Bhalla is managing director of Oxus Research and Investments, a New Delhi-based economic research, asset management, and emerging-markets advisory firm. He taught at the Delhi School of Economics and worked at the Rand Corporation, the Brookings Institution, and at both the research and treasury departments of the World Bank. He has also worked at Goldman Sachs (1992-94) and Deutsche Bank (1994-96). He is author of Imagine There's No Country: Poverty, Inequality, and Growth in the Era of Globalization (2002). His research interests are fiscal policy (flat tax?), economic history (do institutions cause growth?), and macroeconomic policy (the role of exchange rates in economic development). He has been a member of several government of India committees on economic policy, most recently the committee on capital account convertibility. He is on the board of India's largest think tank and is an appointed member of the National Statistical Commission of India. He is also a regular contributor to newspapers and magazines on economics, politics, and cricket. His first book, Between the Wickets: The Who and Why of the Best in Cricket (1987), developed a model for evaluating performance in sports.
Devaluing to Prosperity: Misaligned Currencies and Their Growth Consequencesby Surjit S. Bhalla
Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy—intervention in currency markets to keep the price of the home currency cheap—as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic… See more details below
Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy—intervention in currency markets to keep the price of the home currency cheap—as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic growth but undervalued currencies cannot help in growth acceleration. A parallel belief has been that the real exchange rate—that is, a country's competitive ranking—cannot be affected by merely changing the nominal exchange rate. This view is grounded in the belief, and expectation, that inflation follows any devaluation of currency. Hence, the conclusion that the real exchange rate cannot be affected by policy.
However, given China's remarkable performance in recent decades, this traditional view is being reexamined. China devalued its currency by large amounts in the 1980s and early 1990s; instead of inflation, it achieved high growth. Today, there is near-universal demand for China to significantly revalue its currency.
This book examines the veracity of various propositions relating to currency misalignments, and their effect on various items of policy interest. The author subjects more than a century of global exchange rate management and growth outcomes to rigorous empirical analysis and demonstrates convincingly that a country can systematically devalue and yet prosper.
The analysis helps in interpreting several phenomena, especially for the last three decades, which have witnessed high economic growth in developing countries, a widening of global imbalances, and a sharp increase in reserve accumulation, particularly among high-growth Asian economies. The book shows that these events are strongly linked via a consistent policy of currency undervaluation in Asian economies.
- Peterson Institute for International Economics
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