fundamental disequilibrium

fundamental disequilibrium

a situation under a FIXED EXCHANGE RATE SYSTEM where a country is in a position of persistent (long-run) BALANCE OF PAYMENTS deficit or surplus at a particular (fixed) exchange rate against other countries. The only practical course of action, given the inadequacy of internal measures such as DEFLATION and REFLATION to remedy the situation, is a DEVALUATION to a lower exchange rate value to eliminate a deficit, and a REVALUATION to a higher exchange rate value to eliminate a surplus. See BALANCE OF PAYMENTS EQUILIBRIUM, INTERNAL-EXTERNAL BALANCE MODEL.
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