why doesn't every country scale up the prices to the international level?

Question

I live in an Asian country in which the average monthly salary is maybe 300-400 dollars but things (apart from exported goods like laptops or smartphones) are reasonably cheap compared to their price in the US for instance.
One pizza is around 3 dollars, you can rent a decent hotel room with less than 20 dollars and average monthly rent for apartments in our capital city is around 150 dollars. 
my question is why doesn't our government scale up everything like 5 times so the pizza would cost 15$ but at the same time salary is 2000 dollars?
That wouldn't make any difference for us but now our country seems to be a heaven for foreign tourists and I think this can make things better.
I know I'm not the first person that this idea has crossed his mind but can't figure it out what are the technical issues which prevent this idea from happening.

Art · Answer

For simplicity suppose the local currency exchange rate is 1 LOC = 1 USD.

Suppose that the central bank simply print out 5 times the paper money in circulation, creating inflation. Pizza would then cost 15 LOC instead of 3 LOC. But then if the exchange rate regime is floating (majority of countries now use this), then the inflated money would be worth less, causing the exchange rate to fall to 5 LOC = 1 USD. That is, you need less USDs to exchange for 1 LOC. In essence, tourists would be paying the same (3 USD, which is now equal to 15 LOC).

So the next question is, why don't the central bank make their local currency appreciate (make 1 LOC = 5 USD, so that the pizza that cost 3 LOC would now be equal to 15 USD.)

Well, the demand and supply for money is what determines the exchange rate. If you want to know more about this I'd suggest you read more on exchange rate intervention here.

why doesn't every country scale up the prices to the international level?

One Answer

Add your own answers!

Related Questions

Theoretical models of copyright infringement and efficiency implications

Is there any pressure to keep currency exchange rates around 1?

How to define the natural rate output

Can anyone help me understand the Motrtensen-Pissarides model?

Models with Learning by Doing and Knowledge Spillovers – Barro, Sala-i-Martin (2003)

Where can I retrieve a complete history of macro economic data annoucements?

Why high levels of inflation doesn’t leads to high levels of employment?

An Extension to CES Demand

Why can the job offer have a negative relationship between salary and quantity of work?

Measurement for the downstream use of a commodity

What is used for calculating equity multiplier between total liabilities and total debts from Datastream?

Choice between dummy variables and Likert scale in Linear Regression

Applying modern economics to Edgeworth’s Hedonical Calculus

Regressing (Very) Smooth Time Series

What does “steep incentive contract” mean in the context of adverse selection?

Dynamic model calibration of rate parameters

prodest package in R, TFP growth estimation

K-shaped recovery – is there a benign explanation for it?

Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

Would someone be able to help me solve capital per capita in the steady state (check my work)

Ask a Question