Attempts by two or more countries to improve their competitive position relative to the others by devaluing their currencies. For each country, devaluation gives at least a temporary cost advantage, which improves the competitiveness of domestic firms. They can either maintain their prices in domestic currency and cut their foreign currency prices, or raise their prices in domestic currency and use the revenue gained to improve the quality of their products. Each country only retains the advantage thus gained until the next competitor devalues.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|