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Country: Sweden
Committee: Economic and Financial
Topic: Devaluation of Currency
Delegates: Mr. Dan Richards and Mr. Andrew Klein
Devaluation of currency has become an increasingly important issue as the world
economy becomes even more interconnected. The world economy is a result of an ever
growing and ever-changing global dynamic. This dynamic formed both by the buying
power of a state, dependent on their GDP and the value of their currency relative to other
currencies, and the balance of trade a nation has, the value of exports verses the value of
imports. Devaluation of currency is generally a negative economic signal; however, it
can be both necessary and beneficial to a nation to allow its currency to devaluate,
including discouraging informal value transfer systems. These situations include, but are
not limited to, to helping to increase exports and discouraging imports, boosting tourism,
stimulating growth, and controlling the balance of power, monetarily speaking, in a
region. Devaluation of currency, however, generally negatively affects states that are
trading with the state, which is undergoing devaluation of their currency. This negative
impact is in the form of general devaluation of currencies though out the region, and a
destabilization in the balance of trade among the nations whom trade with the state
undergoing currency devaluation. Generally, small developing nations are under the
greatest pressure to devalue there currency. A major part of this pressure is that
developing countries often fix there exchange rate with a more stable currency such as
the Euro or the United States dollar. This can often be good, however is the foreign
currency’s value increases significantly it can result in a destabilization of the developing
economy. To avoid this developing nation is often forced to devalue its currency to keep
the economy operational. When Developing nations are faced with such crises as these,
the IMF often sets regulations, which the developing nation must follow to gain
economic assistance. These generally include but are not limited to: adoption of strict
government spending controls, and devaluation of currency. The value of a currency is
controlled in several ways. The simplest of these methods involves keeping large
amounts of foreign currency in reserve and pumping it in to the global economy thus
reducing the price that people will pay for it effectively increasing or maintaining
exchange rates.
It is the belief of the Reoeringsknsliet of Sweden that Sweden should maintain a
policy of zero devaluation in currency based, on the hope of adopting Euro as the
Swedish currency. Sweden is a member state of the European Union; however has yet to
adopt the Euro as its official currency because it was defeated, narrowly, in a binding
nationally referendum. Sweden believes that through controlling the discount rate they
can prevent the devaluation of the Krona even when faced with regional pressures to
devalue or to allow there currency to free float as Finland has done. Sweden believes that
its ability to hold firm in the face of such pressure, is due to its minimal amount of debt,
relative to GDP, and its devotion to short-term extraordinary measures to stabilize the
Krona in the past. Sweden further believes that devaluation in developing countries
should only be used as a last resort and that other means of stabilizing a economy should
first be explored.