•  As our own history well demonstrates, any short-term gains that may be available to exporters as a result of a one-off depreciation of the exchange rate are quickly eroded as future inflation increases. As a fix for competitiveness problems, exchange rate depreciations are both addictive and ultimately destructive. •  Central banks do not determine real exchange rates in the long term.
Markets and relative economic efficiency/productivity trends determine real exchange rates. What of the balance of payments deficit? Let me touch on one other issue that is relevant to the longer-term behaviour of the New Zealand dollar and New Zealand interest rates -- the balance of payments.