7 Magnitudes of Devaluation, 1948–67

Margaret De Vries
Published Date:
June 1986
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By the late 1960s a number of economists, especially in the universities, were lamenting the little use that countries had made of exchange rates to solve their balance of payments difficulties. For example, many economists were advocating the use of floating rates to overcome too rigid fixed rates or were considering how fiscal or monetary policies could compensate for the rigidity of exchange rates. For the most part, these economists were focusing on the large industrial countries. They noted that, until the devaluation of the pound sterling in November 1967, few changes had been made since 1949 in the exchange rates of the major industrial nations.

On the other hand, the business community and commercial traders, keenly aware of their competitive positions, feared devaluation of other countries’ currencies. Their fears as it turned out were exaggerated.

This article briefly looks at the magnitudes and frequencies of exchange devaluation that occurred in a broad spectrum of countries in roughly the two decades after World War II. It shows that, in actuality, use of the exchange rate mechanism was relatively common, especially by developing countries.


Percentage changes in the exchange rates for 109 countries (all Fund members except Switzerland) for the 20-year period from the end of 1948 to the end of 1967 are presented in Table 1; by using long-term data, numerous small devaluations can be compressed into a single figure. The end of 1948 was chosen as a starting date because the exchange rates of several countries were more settled then (or by early 1949) than they were immediately after World War II, and because data for 1948 are readily available.

Table 1.Percentage Devaluation, 1948–67
Developing Countries




No devaluation or appreciation131320071
Less than 30 percent122600132
30–39 percent223594013
40–75 percent3946186252
More than 75 percent235264272
Note: Industrial countries followed by developing countries; within each group, countries are listed in order of increasing depreciation.

Japan, Switzerland, the United States; Lebanon, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Liberia, Panama, Ethiopia.

Canada, Italy, Belgium, Luxembourg, the Federal Republic of Germany, the Netherlands; Costa Rica, the Syrian Arab Republic, Saudi Arabia, Portugal, Venezuela, Nicaragua.

Australia, Norway, South Africa, Sweden, Denmark, Burma, Iraq, Jordan, Kenya, Kuwait, Libya, Malaysia, Nigeria, Pakistan, Sierra Leone, Singapore, Somalia, Sudan, Tanzania, Uganda, Zambia, Ecuador.

Ireland, United Kingdom, New Zealand, France, Austria, Finland; Cyprus, The Gambia, Jamaica, Malawi, Trinidad and Tobago, Guyana, Burundi, Egypt, Sri Lanka (Ceylon), Philippines, Thailand, India, Rwanda, Peru, the Islamic Republic of Iran, Mexico, Nepal, Turkey, China, Cameroon, Central African Republic, Chad, Benin (Dahomey), Gabon, Guinea, Côte d’lvoire (Ivory Coast), Madagascar (Malagasy Republic), Mali, Mauritania, Niger, Senegal, Togo, Burkina Faso (Upper Volta).

Iceland, Spain; Ghana, Algeria, Tunisia, Morocco, Congo (Brazzaville), Colombia, Greece, Lao People’s Democratic Republic (Laos), Viet Nam, Israel, Yugoslavia, Paraguay, Argentina, Chile, Congo (Democratic Republic of), Uruguay, Bolivia, Afghanistan, Brazil, Indonesia, Korea.

Note: Industrial countries followed by developing countries; within each group, countries are listed in order of increasing depreciation.

Japan, Switzerland, the United States; Lebanon, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Liberia, Panama, Ethiopia.

Canada, Italy, Belgium, Luxembourg, the Federal Republic of Germany, the Netherlands; Costa Rica, the Syrian Arab Republic, Saudi Arabia, Portugal, Venezuela, Nicaragua.

Australia, Norway, South Africa, Sweden, Denmark, Burma, Iraq, Jordan, Kenya, Kuwait, Libya, Malaysia, Nigeria, Pakistan, Sierra Leone, Singapore, Somalia, Sudan, Tanzania, Uganda, Zambia, Ecuador.

Ireland, United Kingdom, New Zealand, France, Austria, Finland; Cyprus, The Gambia, Jamaica, Malawi, Trinidad and Tobago, Guyana, Burundi, Egypt, Sri Lanka (Ceylon), Philippines, Thailand, India, Rwanda, Peru, the Islamic Republic of Iran, Mexico, Nepal, Turkey, China, Cameroon, Central African Republic, Chad, Benin (Dahomey), Gabon, Guinea, Côte d’lvoire (Ivory Coast), Madagascar (Malagasy Republic), Mali, Mauritania, Niger, Senegal, Togo, Burkina Faso (Upper Volta).

Iceland, Spain; Ghana, Algeria, Tunisia, Morocco, Congo (Brazzaville), Colombia, Greece, Lao People’s Democratic Republic (Laos), Viet Nam, Israel, Yugoslavia, Paraguay, Argentina, Chile, Congo (Democratic Republic of), Uruguay, Bolivia, Afghanistan, Brazil, Indonesia, Korea.

Because the results depend on the particular exchange rates used, and because in some instances a choice of rates existed (such as countries with multiple currency practices), an endeavor has been made to select for these calculations exchange rates actually in use in 1948 and 1967 as against, say, legal par values. For most countries, par values, or at least fixed official rates, could be used; but for some countries, free market rates have been used, and for a few, a choice among multiple rates has been made. The percentage changes in exchange rates have been measured relative to gold, or to the U.S. dollar with gold content expressed in the weight and fineness in effect on July 1, 1944—that is, the rate for the U.S. dollar in effect in the 1948–67 period—with 100 percent being the maximum possible devaluation.

Table 1 also shows the distribution of 109 members according to the total percentage by which their currencies were devalued during this 20-year period. The first group shows 13 countries that did not devalue at all: the United States, Japan, and Switzerland, 7 Latin American countries, Lebanon, Ethiopia, and Liberia.1 Indeed, in Lebanon a slight appreciation occurred. The second group comprises 12 countries that devalued less than 30 percent in these 20 years—approximately the amount by which the pound sterling was devalued in September 1949; in this group are not only several major industrial countries (Belgium, Canada, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands) but also 3 Latin American countries (Costa Rica, Nicaragua, and Venezuela) and Portugal, Saudi Arabia, and the Syrian Arab Republic. The Federal Republic of Germany and the Netherlands, after devaluing by about 30 percent in September 1949, both revalued their currencies upward by 5 percent in 1961.

The third group comprises 22 countries that devalued a total of 30–39 percent from 1948 to 1967. This group includes mainly countries that devalued along with the pound sterling in 1949 but not in 1967. It also includes Denmark, which devalued again in November 1967, by 7.9 percent—less than the 14.3 percent of the 1967 sterling change. Apart from Australia, Denmark, Norway, and Sweden, the group includes developing countries in Asia, the Middle East, and Africa—for example, Burma, Iraq, Kenya, Malaysia, Nigeria, Pakistan, and Singapore.

What is often not fully realized is that for 62 countries the magnitude of devaluation in the first two decades after World War II exceeded 40 percent. Some 39 countries devalued between 40 and 75 percent; this included not only the United Kingdom and Ireland, which had devalued just over 40 percent in total, but also Austria, Finland, India, Mexico, New Zealand, Peru, the Philippines, and Turkey, which had devalued by larger amounts. For another 23 countries devaluation in the 1948–67 period exceeded 75 percent. Among European countries in this last group were Greece, Iceland, Spain, and Yugoslavia. Other countries devaluing by these large amounts were 7 Latin American countries (Argentina, Bolivia, Brazil, Chile, Colombia, Paraguay, and Uruguay), as well as Ghana, Indonesia, Israel, Korea, and Viet Nam.

In sum, devaluations in the 1948–67 period, even by the industrial countries, fell in all five categories of percentages of devaluation. Among the developing countries two patterns of devaluation were apparent. One followed that of the major currencies. Countries in Latin America conformed generally to the movements, or lack of movements, in the U.S. dollar and devalued either not at all or very little. Many others in Asia and Africa followed the exchange movements of either the pound sterling or the French franc. The second pattern followed developments in the general price level and in the balance of payments positions of the individual country. Many developing countries, in all geographic regions, devalued independently of the major currencies, by amounts from 40 to nearly 100 percent.

The average devaluation of all 109 countries for these years was 48.2 percent. The average for those 96 countries that did engage in some devaluation (eliminating the 13 countries of group one) was, of course, higher—54.7 percent. The global picture is seen in better perspective, however, when account is taken of the differing importance in world trade of various countries. Averages were, therefore, calculated which were weighted by the share in 1966 of the country’s exports in total world exports (see Table 2). Australia, Canada, New Zealand, and the United States, as a group, devalued by the least amount, only 5.2 percent. The weighted average for Europe was 23.5 percent. The Latin American countries devalued by the greatest amount—a weighted average of 62.2 percent—with the Middle East, Asia, and Africa in between. As would be expected (because the larger trading nations devalued less than most smaller ones) the overall world weighted average (calculated for 109 countries) was 22.8 percent, much less than the unweighted average.

Table 2.Extent of Devaluation, 1948–67, by Regions
RegionNumber of

Average Trade-

Weighted Devaluation
Australia, Canada, New Zealand, and the United States45.2
Middle East1238.4
Asia (excluding Japan)1446.1
Latin America2362.2

The Frequency of Devaluation The frequency with which devaluation occurred in the 1950s and 1960s, as well as the extent of the magnitudes involved, is also often underestimated. Admittedly some 12 countries did not devalue at all in the 1948–67 period—1 even slightly appreciated its currency—and another 27 devalued only once, most of them in the general realignment of 1949. However, an impressive total of 48 countries devalued at least once more after 1949, and another 21 devalued quite frequently. Table 3 shows these frequencies.

Table 3.Frequency of Devaluation, End 1948–End 1967
Number of

No devaluation since 194812
One devaluation27
Two devaluations24
Three devaluations24
Frequent devaluations, but no change since 19625
Frequent devaluations, including changes since 196216

Among the 24 countries that devalued once again after 1949, for a total of two devaluations, were not only those that devalued in November 1967 along with the United Kingdom (such as Denmark, Ireland, Jamaica, New Zealand, and Sri Lanka (Ceylon)) but several that found it necessary earlier to devalue once more the exchange rates that they had set in 1949: Austria, Egypt, Ghana, Greece, and India. France and the countries in the French franc area devalued twice after 1949—once in 1954 and again in 1958—making a total of three devaluations.

Devaluations for countries with multiple or fluctuating rates were even more numerous. Five countries—Bolivia, China, Paraguay, Thailand, and Yugoslavia—had frequent devaluations until 1962 but had not changed their rates again as of 1967. Another 16 countries continued to devalue fairly often, even in the last five years of the 1948–67 period. These included not only several Latin American countries (Argentina, Brazil, Chile, Colombia, and Uruguay) but also a few countries in Europe and several in the Middle East and Asia.

Comparison with Prices Interesting as these figures are, measurements of the changes in exchange rates for various countries are more revealing when juxtaposed with movements in their domestic prices. Because of the wide differences among countries in their rates of internal inflation, and, in particular because the majority of developing countries had a great deal more inflation than the industrial countries, it is not sufficient merely to compare the size of the external depreciation of various currencies. One should rather compare external with internal depreciation, that is, depreciation in real terms, for various countries. While the Brazilian cruzeiro and the Chilean peso, for example, were devalued by 99.9 percent between 1948 and the end of 1967, their domestic price levels had, in the meantime, gone up one hundredfold. The question therefore arises of how much the exchange rate had changed in comparison with rises in internal prices?

To measure the relation between exchange rate changes and internal prices, ratios were calculated between actual exchange rates in December 1967 and “notional rates” that is, exchange rates that had just kept pace with subsequent inflation. A notional rate for each of 65 countries was obtained by taking the exchange rate in 1948 and adjusting it to take account of the rise in the cost of living index in that country from 1948 to mid-1967.2 This rate shows what exchange rate would have prevailed in mid-1967 had the exchange rate been devalued since 1948 merely to the same extent as the country’s consumer prices had increased. In technical terms, actual exchange rates at the end of 1967 were compared with calculated purchasing power parity rates.

It is thus possible to measure what changes in exchange rates had occurred in something like “real terms,” that is, abstracting from differences in internal price changes. The actual exchange rate for each country in December 1967 was expressed as a percentage of the notional rate, that is, as a ratio. A ratio of 100 indicates that the exchange rate and prices were in the same relationship in 1967 as they were in 1948. Where the ratio exceeds 100, exchange devaluation had been less than the increase in the country’s prices of consumer goods. Where the ratio is below 100, the exchange rate had been devalued more than the country’s prices had increased.

Rather than presenting the results for 65 countries individually, the countries have been grouped into 5 categories, and an average ratio obtained for each group. Group one consists of 19 industrial countries—the United States, Canada, several countries in Western Europe, Japan, Australia, New Zealand, and others. The degree of inflation is measured relative to that of the United States, which had had very little inflation in this period; in the United States the level of consumer prices in mid-1967 was 1.4 times the level of 1948. Most of these industrial countries had “moderate inflation.” Moderate inflation here means greater than that of the United States but not considerably greater—the level of consumer prices in mid-1967 was about 1.4 to 2.0 times its 1948 level.

The remaining 46 countries—comprising the developing countries—have been distributed over four groups according to the degree of inflation that they experienced. Group two consists of 12 developing countries—some in Latin America, a few in the Middle East, and two in Asia—that had “little inflation.” Little inflation means less price rise than that of the United States in this period. Group three consists of another 10 developing countries—the rest of Latin America and a few countries in Asia and Africa—that had “moderate inflation,” as defined above.

Group four consists of another 9 developing countries—some from each geographic region—that had “strong inflation” that is, their price levels rose by more than two, but less than three, times from 1948 to 1967. Finally, in group five are 15 countries that had “chronic inflation” their consumer price levels went up by at least three times in the 1948–67 period, and for many countries by much more; half of these countries were in Latin America, but a few in Southern Europe, the Middle East, and Asia were also included.

This arrangement of countries enables one to interpret the ratio between the actual exchange rate and the notional exchange rate with reference to the degree of inflation. A ratio well below 100 in a country with little inflation means that it had had very little increase in domestic prices; it may not have adjusted its exchange rate at all from 1948 to 1967. On the other hand, a ratio below 100 for a country with very high inflation reflected a degree of exchange devaluation which was even greater than the rise in its internal price level.

The results are as follows. The major industrial countries had an average ratio well above 100—indeed 141. In other words, the general level of consumer prices in these countries from 1948 to 1967 rose more than their exchange rates had been devalued.

The ratios for the four groups of developing countries, on the other hand, were considerably lower, and two of the four groups of developing countries were even below 100. For the developing countries in group two, the explanation for the average ratio of only 95 is simple: their price increases had been virtually negligible. Several of them had also devalued in line with major currencies, although only two or three of them had devalued in the last years of the period reviewed. The average ratio of 121 for group three, developing countries with moderate inflation, was also lower than that of the industrial countries, partly because the rates of inflation in the industrial countries had been somewhat lower and also because some of these countries had devalued by larger amounts than most of the developing countries.

What is more surprising are the relatively low ratios for groups four and five (110 and 99, respectively), developing countries with relatively strong and even chronic inflation. This clearly reflects extensive exchange depreciation, even in real terms (apart from price rises). And the greater the inflation, the larger, on average, had been the depreciation, even in real terms.

Several factors help to explain this extensive devaluation by the developing countries in these two decades, even relative to their great inflation. First, the exchange rates of many developing countries in 1948 might well have been more out of line with prices in the rest of the world, compared with prices at home, than the exchange rates of the major countries. Hence, more “correction” might have been necessary to realign their rates. Second, developing countries more than industrial countries had used exchange rate adjustment as a policy tool. Industrial countries had relied more heavily on monetary and fiscal policies and on other domestic measures. Third, demand for the exports of the industrial countries on the whole had been more dynamic and had grown more than that for the exports of the developing countries. Moreover, the productivity advances in industrial countries in export industries had also been more marked than in developing countries; these had helped to keep their export prices relatively lower than their general consumer prices. Hence, the general level of prices in industrial countries could often run ahead of exchange rates without damaging their export positions; this had been much less true for developing countries.

Fourth, the mechanism by which exchange rates were adjusted also seems to have been a factor in the extent of depreciation. Countries which had used multiple exchange rates—and these were mainly developing countries—had devalued much more in relation to their general domestic prices than had countries with unitary exchange rates. As countries had eliminated multiple rates, they had usually devalued their currencies to the prevailing free market rate; the free market rate, at least at the time of devaluation, was usually well below an exchange rate level depreciated only to the extent of the rise in general prices. Finally, a Fund study suggests that inflation itself, because of its price distorting effects, might have induced a degree of exchange depreciation in excess of the rise in domestic prices.3


It can thus be concluded that from 1948 to the end of 1967, important alterations occurred in the structure of international exchange rates. Many countries—industrial and developing alike—had devalued their exchange rates extensively. Furthermore, the relative realignment of rates between countries that had occurred was striking. Countries with chronic inflation had engaged in severe and frequent exchange devaluation that had more than offset the subsequent rises in their general domestic prices. Countries with lesser amounts of inflation had also offset considerable amounts of their domestic price increases via adjustments in their exchange rates. And a substantial realignment of the exchange rates of the developing countries against the major industrial countries had occurred, even allowing for the price advances of the developing countries. Where their prices had risen, they had usually devalued a good deal more than the price rise. Where they had not devalued—or devalued very little—their price rise had generally been very small.

Chronology, 1944–65

July 1–22The Articles of Agreement of the Fund and those of the World Bank were formulated at the International Monetary and Financial Conference, held at Bretton Woods, New Hampshire, U.S.A. Forty-five countries were represented, and quotas totaling US$8.8 billion were recommended.
December 27The Fund’s Articles of Agreement entered into force upon signature of 29 governments accounting for 80 percent of the original quotas.
March 8–18The inaugural meeting of the Board of Governors was held in Savannah, Georgia, U.S.A. The By-Laws were adopted and the first Executive Directors were elected. In addition, it was agreed that the Fund’s headquarters would be in Washington.
May 6Twelve Executive Directors—five appointed and seven elected—held their first meeting, in Washington. Camille Gutt, of Belgium, became the first Managing Director.
September 27–October 5The first Annual Meetings of the Boards of Governors of the Fund and the World Bank were held, in Washington.
December 18Initial par values were agreed for the currencies of 32 of the Fund’s 39 members and most of the nonmetropolitan areas of Belgium, France, the Netherlands, and the United Kingdom.
March 1The Fund began financial operations.
May 8France made the first drawing from the Fund, for $25 million.
December 18After a detailed examination of multiple currency practices, the Fund sent a letter and memorandum to members setting forth broad powers for the Fund in this area.
January 25The Fund took a decision that it must object to a proposed change in the par value of the French franc because it involved introduction of a multiple currency practice. France proceeded with the measure and as a consequence was declared ineligible to use the Fund’s resources. (As of 1985, this had been the only such declaration by the Fund.)
April 5The Fund took a decision that members participating in the European Recovery Program (the Marshall Plan) should, in general, refrain from requesting use of the Fund’s resources.
September 19–21The initial par values for the currencies of many members were adjusted. In essence, devaluation of the pound sterling by the United Kingdom was followed by devaluations by Australia, Belgium, Canada, Denmark, Egypt, Finland, France, Greece, Iceland, India, Iraq, Luxembourg, the Netherlands, Norway, and South Africa.
March 1In accordance with the Articles of Agreement, the first Annual Report on Exchange Restrictions was published.
August 3Ivar Rooth, of Sweden, became the second Managing Director.
February 13The Fund took a decision which, for the first time, set forth a general policy on use of the Fund’s resources. The decision initiated the Fund’s policy of drawings in tranches, made drawings in the gold tranche virtually automatic by practice, specified three-to-five years as the period for repurchase, and foreshadowed the stand-by arrangement.
March 1In accordance with the Articles of Agreement, five years after the Fund began financial operations, annual consultations with members still maintaining exchange restrictions under Article XIV were initiated.
October 1The Fund introduced a general framework for stand-by arrangements, and the criteria to be applied were standardized.
September 7Per Jacobsson, of Sweden, became the third Managing Director.
October 17The Fund approved large drawings and stand-by arrangements for France and the United Kingdom, which they requested partly because of the loss of revenue from the closing of the Suez Canal.
June 26The Fund took a second general decision on multiple currency practices. In essence, the Fund notified members that it would no longer approve complex systems unless the members maintaining them were making reasonable progress toward simplification.
December 29Fourteen Western European countries made their currencies externally convertible for current transactions. This meant that nonresidents were freely permitted to exchange their earnings of these currencies from current transactions into any other currency at exchange rates within the official margins.
September 9The first general increase in Fund quotas became effective. Members’ quotas were increased by 50 percent, enlarging the size of the Fund’s resources from $9.2 billion to $14.0 billion.
February 15Nine Western European members and Peru accepted the obligations of Article VIII of the Fund’s Agreement. This move resulted in all the major currencies which had been considered inconvertible in the sense of the Fund Agreement becoming convertible.
July 28In a reversal of a 1946 interpretation of the Articles, the Fund took a decision permitting use of its resources for capital transfers.
October 24The General Arrangements to Borrow (GAB) went into effect. Under these arrangements the ten largest industrial members stood ready to lend the Fund $6 billion (Belgium, Canada, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States.)
February 27The compensatory financing facility, in which members experiencing temporary shortfalls in their export earnings could draw on the Fund, was established.
May 5Per Jacobsson, Managing Director, died.
September 5Pierre-Paul Schweitzer, of France, became the fourth Managing Director.
February 26Under the Fourth Quinquennial Review of Quotas, the Executive Board recommended to the Board of Governors a general increase of 25 percent in all quotas and special increases for 16 members that would enlarge the Fund’s resources from $16 billion to $21 billion.
September 27In his opening address at the Annual Meetings, Mr. Schweitzer repeated his conviction that international liquidity is the business of the Fund and announced that the Fund would intensify its studies of this subject.
November 5To involve the Executive Board in the discussions of international liquidity going on in the Group of Ten, it was agreed that the Managing Director’s representatives at meetings of the Deputies of the Group of Ten could report to the Executive Board on the proceedings.

Note: This article was published earlier in a slightly different form in Finance & Development (Washington), Vol. 5 (June 1968), pp. 8–12. A longer version can be found in Margaret G. de Vries, “Exchange Depreciation in Developing Countries,” Staff Papers, International Monetary Fund (Washington), Vol. 15 (November 1968), pp. 560–76.

Japan’s official exchange rate was set in April 1949 and remained unaltered until the early 1970s.

Those 65 countries were selected for which price data back to 1948 were available.

Graeme S. Dorrance, “The Effect of Inflation on Economic Development,” Staff Papers, International Monetary Fund (Washington), Vol. 10 (March 1963), pp. 1–47.

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