Fundamental Disequilibrium

Discipline: Economics

The term fundamental disequilibrium was first used by the International Monetary Fund to describe a situation in which a persistent discrepancy exists between the official exchange rate of a currency and its actual purchasing power.

When national inflation rates vary, official rates of exchange will no longer mirror the value of a currency and an adverse balance of payments will develop until the exchange rates are altered. If the situation persists, it is considered fundamental rather than temporary.

Also see: internal and external balance

Source:
J K Horsefield, The International Monetary Fund 1945-65: Twenty Years of International Cooperation (Washington, DC, 1969)

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