Abstract/Summary

The currency market is a relative market, where one currency is priced in terms of another currency. As a consequence, currencies move relative to other currencies so that not all currencies can devalue at the same time. This creates a methodological challenge for measuring devaluations in the currency market as a whole, which may occur due to competitive devaluations, monetary policy coordination, contagion, or other reasons. For example, if there is a coordinated global reflationary policy, what measures the overall currency-market devaluation? In this paper, gold is treated as a currency to create a nominal anchor by which to measure currency-market devaluations, as all the other currencies can devalue relative to gold. In general, there have been three currency-market devaluations since the end of the Bretton Woods international monetary system: 89% between 1972 and 1980; 66% between 2005 and 2012; and 25% between 2019 and 2020.