March 9, 2017 – Il Sole 24 Ore published an editorial co-authored by SEP Senior Fellow Lorenzo Codogno, in which he observes that currency devaluation is merely a method for reducing real salaries. According to Milton Friedman, a lower exchange rate is equivalent to changing legal working hours, forcing people to work more for the same real income (because of inflation, their money is worth less). However, devaluation tends to have a disproportionate impact on more fragile social classes, who are less adept at protecting their savings from drastic inflation (i.e., storing their wealth in foreign currency). For workers, lowering the exchange rate and lowering salaries has the same effect—their purchasing power decreases. However, before the euro, Italy could reduce real salaries across the board with the flick of a pen. With it, the government is required to inform and negotiate with workers and businesses.
- The original article (in Italian) is available from Il Sole 24 Ore.