THE MILD REPERCUSSIONS OF A DEFT DEVALUATION

CURRENCY devaluations by major countries were once regarded as cataclysmic events likely to cause global shock waves that would disrupt trade, employment and international investment. Last week, when world money markets reopened after France's surprise 12½% devaluation of the franc, the repercussions proved to be notable for their mildness.

Fourteen African countries that once were French colonies devalued their franc-linked currencies and the Belgian franc came under heavy selling pressure, but the more important world currencies fared reasonably well. As expected, speculators sold British pounds and bought undervalued German marks, but not in quantities great enough to produce any crisis—not even after Britain at midweek published figures showing that its chronic trade deficit widened to $89 million in July from $60 million in June.

The pound hit a record low of $2.3813 in London, apparently because the Bank of England felt it safe to support the price at a lower level than the $2.3825 it usually tries to maintain as a floor. The value of the U.S. dollar dropped against the mark in Frankfurt but held steady elsewhere. The free-market price of gold moved scarcely at all—even though that volatile price is supposed to shoot up on any widespread doubts about the value of paper money.

Even politically, the French move proved to be quite the opposite of the disgrace that devaluation has often been thought to be. The financial world rang with praise of President Georges Pompidou's astuteness in cutting the franc when most of Europe was on vacation, in advance of any crisis, and to a level—18.0040—that most moneymen thought was about what the franc really is worth. Contrasting the months of turmoil that followed the 1967 devaluation of the pound with the calm reception of the French devaluation, the London Times concluded wistfully that "the differences show clearly the differences in political competence between the two governments."

As French officials well know, devaluation by itself is not enough to restore a country to financial health. By temporarily lowering export prices and raising import prices, a devaluation only gives a country time to overcome the economic weaknesses that undermined its currency. The benefits of devaluation can easily be wiped out by further inflation. If French price increases continue at their current pace of 6.5% yearly, the gains of franc devaluation will be gone in less than two years. In fact, devaluation itself has a tendency to accelerate inflation, because the automatic increases that it brings in the prices of imported products tend to work their way through an economy. To make a devaluation succeed, a country must clamp down quickly on the consumer demand that pushes up prices, pulls in costly imports and diverts to home consumption some of the production that should go into exports.