Why devaluations of currency do not work

The idea that devaluations make a country's goods more "competitive" is pure gold to governments. Enhanced "competitiveness", in turn, is believed to increase exports and reduce imports, thereby improving the country's trade account, employment, balance of payments and domestic budget. Governments also believe that changing the value of their country's currency will, in some way, go unnoticed internally and externally and that market forces will somehow be blind to their currency interventions; that they can change the terms of trade at will. This theory is not true. Devaluations per se lead to fully offsetting price changes. The increase in the price level of the devaluing country's currency less the increase in the price level of the countries' currencies against which the first currency was devalued will exactly equal the devaluation. All that devaluations will cause is offsetting inflation.