The valuation effect of changes in exchange rates
Keywords:Balance of payments, exchange rates, valuation effect
The practice of publishing balance of payments statistics, and analysing balance of payments developments, in domestic currency has one unfortunate consequence. In the event of a major change in the exchange rate, domestic-currency valuation can give a very misleading picture because of the valuation effect of a change in the exchange rate from a position of initial imbalance. The present work draws attention to this valuation effect which has been largely ignored in the literature and states the case for presenting balance of payments statistics in foreign as well as in domestic currency.
JEL: F30, F32