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 ?
The 3:37-minute video showing the state's economic reform plan said that the whole strategy has six main principles, which include "getting rid of the currency overvaluation, reforming the tax system, developing the administrative structure and wages, putting a clear strategy of reforming the energy sector and finally enhancing the social security sources.
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.
64) The difficulty in diversifying their economies (mostly based on primary product export) was worsened by the currency overvaluation, which impeded them to create value to their products and develop.
Moreover, the exchange rate peg was not supported by nominal price and wage flexibility which further reduced Argentina's instruments to deal with currency overvaluation and decreased the credibility of the exchange rate regime.
To safeguard reserves and address currency overvaluation, the National Bank of Ukraine (NBU) floated the exchange rate in February.
2002), found that both currency overvaluation and pure contagion effects were the leading indicators of the Asian crisis.
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.
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.