Devaluation or price reduction?

[rov1200]

Governments have used the excuse of a cheaper £ in helping our exporters and often encouraged it. Wouldn't a better situation be for exporters to lower their prices abroad and keep a strong £.? Germany has achieved this and it has not affected their exports.
A devalulation is a cut in all our pockets.

[Gromit]

So if I want to buy a British made tractor, you think I should be able to buy it cheaper in Germany than in the UK.

And how exactly will that help the UK economy?

[Sqad]

How do you "keep a strong pound?"

The markets determine the strength or otherwise of a currency.

[rov1200]

A devaluation is a cut for all of us. Even if we wanted to buy essential items in the shops imported prices are higher because the strength of the £ is lower.

Wilson was incorrect when he said a devaluation did not hurt the £ in your pocket, it does. Its just like a wage cut as anyone wishing to holiday abroad finds out.

If a manufacturer or shopkeeper wishes to increase his turnover they resort to 'Sales'.
If the £ is devalued by 15%, which it was recently, every £ is worth 85p. With a non devalued currency exporters could reduce their prices by 15% to achieve the same ends.

As for the different prices throughout Europe this takes place all the time. Just take petrol which varies enormously from country to country.

Most speculation on the £ is done by markets trying to second guess how the currency will move. If the government believes in a weaker currency this is seized upon and will move lower. Germany believed in a stronger currency and used steps to ensure the the Euro would remain stable at all costs.

Some would say that with Germany as a partner the Euro would always be strong and maybe thats a strong case for us joining. Now we are at the whim of the speculators.

[jno]

but as Sqad says, we can't devalue any more because there are no fixed exchange rates.

[bobtcharles]

The pound hasn't been devalued recently. It simply finds it's own level relative to other currencies based on dealers confidence in sterling. Low confidence leads to a fall in value. Under current legislation the government has no power to devalue the pound. The current government's wish to encourage export is one it has little control over. It can hope banks lend to companies at low rates by hoping the bank of England keep bae rates low, but it has no control over either of those outcomes. It can send envoys out to other countries to 'big up' our products, but since Prince Andrew (I kid you not) is currently in the job, I can't see that helping. It can sell goverment debt, which might have some negative effect on sterling, but only if lots of our competitors aren't in the same debt ridden boat (which they are). In effect, this govenments wish to boost exports is just that - a wish - It has virtually no method of ensuring that it happens...

[Gromit]

There is no prospect of sterling being devalued.

We might as well be discussing the Gold Standard as a similar irrelevant topic.

[Gromit]

Wilson devalued the pound over 40 years ago.

This is the News section not the History Section.

[rov1200]

We are not all as ignorant as you Gromit, of course Wilson is history but most policians read up on history so future problems can be avoided.

Also everyone knows sterling is not fixed and free to float.

Maybe you didn't know its the same bankers who make these tremendous bonuses who deal in currency movements. They are able to deal almost in real time using a computer screen and have no allegience to any country.

[mike11111]

The devaluation of the pound may well have taken place over 40 years ago (1967), but Wilson's subsequent television broadcast (which I and no doubt many others can still remember) to the effect that devaluation had no effect on the currency value within the UK (the pound in your pocket &c) haunted his government till the end and led to the election of the Tories under Heath, whose fanatical desire to take Britain into the Common Market did far more lasting damage to this country than Wilson ever did.

[rov1200]

Thanks Mike for that info.

I wonder how many other countries have had their currencies devalued as much as Britain has since the war. The speculators such as Geo Soros really stuck the knife in during Black Wednesday during John Major's reign where we had to leave the exchange rate mechanism where we tried to shadow the Deutchmark and were forced to leave it.

But its in the policians power to prevent speculation on such a huge scale if they really wanted rather than throw up their hands and say its a world problem. Can't be done, you hear the cry. But only a short time ago the government slapped a 50% bonus tax on those greedy bankers and made £3 billion from it proving that intervention is possible. Get it Gromit?