Rajan worries about competition for competitive-devaluation...

Recently Raghuram Rajan has created headlines by saying that the world is moving in the problems of the Great-Depression (1930s) as there is lack of coordination between the world’s central-banks in a run to achieve employment and growth through competitive-devaluation same like before when the (now) industrialised countries, back then in 30s, abandoned gold-standard and adopted the same technique to give exports a thrust... which actually helped the countries to come-out depression and did not accentuate it... The withdrawal from the gold-standard made a case to devalue your currency and it helped the countries to reduce unemployment and increase growth, and achieve recovery...  Exports have been the main source of growth for many economies... Rajan this time looks more concerned for the problems the easing-programmes are creating around the world in the emerging-markets... about off-shore capital flows and volatility which was very low back in the thirties, but definitely helped exports... Even the recovery which the US saw during the Great-Recession was preceded by increase in exports... In INDIA too exports shot-up when the Fed started taper-talks in 2013 and the foreign-capital was moving-out... Competitive-devaluation and easing becomes a headache when everybody tries to devalue at the same-time and there is a competition to devalue, and it is a gain to nobody... Competitive-devaluation is also achieved by more money-supply, same like lower interest-rate, but as we know more money-supply is also likely to inflate bubbles in a supply-constrained emerging economy and is not always desirable... However, the trend in the developed countries has been that inflation has gone down as supply-side has improved... For the developed-industrialized-world falling prices or deflation is a problem and not inflation like the emerging world, and the monetary-easing is not increasing prices internally too much and helping exports, but lower interest-rate is responsible for capital-flight which is producing volatility in the emerging-markets where supply-side is still a problem and might create bubbles when there is a divergence between the nominal and real-prices of assets which may go down when inflation will go down with higher interest-rate or the bubble-bursts and push the economy in recession or down-cycle... Full-employment is the limit for monetary-easing and probably even for competitive-devaluation after which it will constrain resources and produce inflation which (is right) should be tightened or otherwise someday the bubble will burst and will increase unemployment if supply-side outstrips demand... People will demand less... Full-employment should also be a guiding principle for devaluation... In a country close to full-employment more money-easing will increase inflation, wages and prices, which is actually bad for competitiveness and exports...