Currency overvaluation

Currency overvaluation

Applies mainly to international equities: (1) consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e., central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); (2) currency value exceeding purchasing power parity.

Currency Overvaluation

A situation in which the exchange rate of a currency exceeds what the open market is willing to pay. For example, currency overvaluation may occur when central banks buy more of a currency that they ordinarily do when other trading is flat. Currency overvaluation makes a country's exports more expensive and may thus be detrimental to international trade.
References in periodicals archive ?
Still working in a context of full convertibility with a fixed exchange rate, monetary authorities had to deal with capital flight and currency overvaluation both driven by an environment of political and economic instability and by the exchange rate policy.
The value of non-oil exports fell as a result of the marked currency overvaluation, Venezuela's exit from the Andean Community of Nations, and the fall in other mineral and commodity prices.
An impressive currency overvaluation and a massive increase in government spending and imports combined with a rapid suppression of foreign assets led to a severe shortage of foreign exchange and to several interlinked perverse macroeconomic circles.
To safeguard reserves and address currency overvaluation, the National Bank of Ukraine (NBU) floated the exchange rate in February.
Poor planning, excessive state domination, a weak tax base, wasteful subsidies, inadequate investment, currency overvaluation, and inefficient banking were all recognized by the Rafsanjani administration in 1989 in its Structural Adjustment Program.
Equivalently, the higher domestic consumption that necessitates a greater reliance on foreign finance could fall substantially on nontraded goods, pushing up their price and leading to currency overvaluation.
Consequently, the widely held view that currency overvaluation was at the heart of each of the East Asian currency crises lacks credibility (although overvaluation probably did play some role).
One of the prominent explanations for the East Asian financial crises of 1997 relies upon East Asian currency overvaluation.
The local currency overvaluation is calculated as a deviation of the (log, PPI-deflated) real exchange rate from mean.
Primarily as a result of the currency overvaluation, Petrozuata has revised its long-term financial forecasts in its 2000 Business Plan.
China's behavior and its neighbors' currency overvaluations, he further suggests, were "most likely" a key cause of the Asian financial crisis of 1997-98.
The result would be the creation of sizable new imbalances that would produce new problems for the world economy and, due to the protectionist impact of large currency overvaluations, for the already-beleaguered global trading system.