Exchange Rate In Maldives

Exchange rate is the rate at which one currency is exchanged for another. In Maldives they were following fixed exchange rate, that is 12.85 Rufiyaa is equals to 1 US Dollar. But the recommendation from IMF because of the large and sustained current account deficit, Maldivian Rufiyaa's value has devalued against Dollar.Government changed to managed floating exchange rate, that is 10. 48 to 15.42. Now it reached its capping level that is Mrf15.42 = $1. Now again its the same effect of fixed exchange rate, if there is no cap it may be 20 or 25 Rufiyaa for 1 dollar. Devaluation makes exports cheaper and imports expensive, as a import oriented country, Maldivives exports become expensive and it lead to inflation and further current account deficit in balance of payment. Here living cost increased by 30 to 40%. The countries like China and Japan they devalued their currency because they are import oriented country, that is good for them. However devaluation will improve current account of balance of payment when the price elasticity of demand for export is greater than one, that is elastic( Marshell Learner Condition). Further more J Curve effect also is there, that is it will take a long period of time to improve current account by devaluation, that is at least 4 to 6 years. So we cannot expect a rapid improvement in economy and current account of the country.Government is saying that they will keep the rate that is Mrf 10 = $1, but it is impossible in short run. In my opinion we have to wait a long period of time for further improvement.In spite  of this the SAARC Summit is going to held in Maldives may bring some foreign currency, aids and further improvement.