A not-so-secret sterling devaluation ploy If there is one piece of news over which I lost no sleep in the past week it has been the demotion of the UK from its triple A rating by Moody's credit rating agency. It has no more significance than a critical newspaper article. The US and France have already been degraded with hardly a ripple. Nor have the agencies shown great insight about the strains on the world economy in recent decades. They remain the assessments of individual people. Rather more important has been the depreciation of sterling. The pound sank by about 25 per cent on the official trade-weighted index at the onset of the world financial crisis in 2007-09. It then started to creep up again in the course of 2012, a development which would have displeased the Treasury and Bank of England because of its supposedly adverse effect on "competitiveness." They need not have worried. As a reaction to the turmoil of the past few weeks it has now fallen slightly below the post-2009 average and is poised to fall further. If you telephone anyone in an official position for a reaction you will be told "there is no exchange rate target." There may be no target, but there is an unannounced policy. All the talk about "rebalancing the economy" means increasing exports relative to imports, an objective that has loomed larger since the disappointing fourth-quarter balance of payments figures. The strategy of boosting exports relative to imports has twin objectives. If successful, it should reduce the number of sleepless nights at the Treasury and BoE. It should also give a boost to domestic activity and jobs in a thoroughly respectable way. The unannounced instrument for so doing is a falling pound. The straws in the wind are too obvious. The Monetary Policy Committee showed a new willingness to consign the 2 per cent inflation target to an ever receding horizon. Then there has been the upward creep of UK long-term interest rates in the past few months. Does this amount to a policy of beggar-my-neighbour? The "authorities" would strenuously deny this and say that they are merely trying to rebalance the economy - as if they knew what a "normal" configuration of output, exports and imports should look like. It may be reasonably asked what my alternative is. As I have long argued, economic policy makers should target nominal gross domestic product - the national income measured in terms of ordinary cash, not the hypothetical inflation-adjusted money usually used in these measures. While officials cannot determine real economic output, they can influence its movement in nominal terms. They might, for instance, have an objective of 5 per cent nominal GDP growth. They cannot determine how much is real growth and how much inflation. But if something like this were official policy, wage and price setters would adjust to it. The objections to this policy amount to saying that GDP figures are only published every quarter with a delay and are often revised. These would be fatal objections if the policy needed high precision on a day-to-day basis. But a rough idea of the trends should be enough to determine whether policy needs to be tightened or loosened. In his evidence to the Treasury select committee, Mark Carney, the governor-elect of the BoE, expressed sympathy with targeting nominal GDP "particularly when an economy is at a zero lower band [of short- term interest rates] and the advantages are based on augmenting inflation expectations and reducing effectively real interest rates with a higher degree of credibility . . ." Above all, "bygones are not bygones under nominal GDP targeting. If in the initial years of providing stimulus to get back to the old trend . . . there is additional shortfall the central bank has to make it up because the gap has widened. And knowledge of this fact itself provides stimulus. In the end he came out provisionally against it because if a "significant proportion of agents in the economy do not follow the rule, do not understand what the central bank is doing, the main benefits of nominal GDP targeting go away" and we are back with inflation targeting. But he added that there was value in a discussion. Obviously it is George Osborne, chancellor of the exchequer, who decides on the framework, but even he would benefit from an open debate.