The Exchange Rate and Growth

The book is an excellent example of taking up a position, and then finding systematic support for it, from a variety of angles. The proposition Surjit Bhalla takes up is that currency undervaluation leads to growth. He argues that while the obverse – that overvaluation harms growth – is well accepted, growth is credited to a wide variety of factors, and the premier, in his view, the role of the currency, is neglected.

It is a tough job he takes on, because to say that undervaluation helps growth is itself contested since it is not easily accepted that nominal variables can have a large impact on real variables. To hypothesise, as he does, that it has been the chief factor driving higher growth historically, is even more controversial.