Introduction
Exchange rate adjustments refer to changes in the value of a currency relative to other currencies. This can be achieved through government intervention in the foreign exchange market, such as buying or selling its own currency, or through market forces driven by supply and demand. Exchange rate adjustments can be a powerful policy tool for governments seeking to influence a range of economic variables, including the trade balance, inflation, and economic growth. This essay will discuss the advantages and disadvantages of exchange rate adjustments as a policy tool, with a particular focus on their effectiveness in addressing a current account deficit.

Advantages of Exchange Rate Adjustment
1. Improving Trade Balance
A depreciation in a country's exchange rate can make its exports cheaper for foreign buyers and its imports more expensive for domestic consumers. This can lead to an increase in exports and a decrease in imports, ultimately improving the country's trade balance. For instance, the Chinese yuan's depreciation in 2015 was partly attributed to a desire to boost exports and reduce the current account surplus (IMF, 2015). However, the effectiveness of this strategy depends on factors such as the price elasticity of demand for exports and imports. If the demand for a country's exports is relatively inelastic, a depreciation in its currency may not lead to a significant increase in export volumes. Moreover, countries with a high import dependency may see only a small reduction in imports due to currency depreciation.
2. Stimulating Economic Growth
By improving the trade balance, devaluation can increase aggregate demand through a rise in net exports. This can stimulate economic growth by boosting production, employment, and investment. For example, Japan's currency depreciation in the 1990s was seen as a factor in the country's economic recovery (OECD, 2000). However, it is important to note that devaluation can also lead to inflationary pressures, which can counteract its positive effects on economic growth.

Disadvantages of Exchange Rate Adjustment
1. Inflationary Pressures
A depreciation in a country's currency can increase the price of imported goods, leading to imported inflation. This can erode purchasing power and reduce consumer confidence. For example, the Turkish lira's depreciation in 2018 led to a significant increase in inflation, which negatively impacted the economy (World Bank, 2019).
2. Uncertainty and Investment
Volatile exchange rates can create uncertainty for businesses and investors. This uncertainty can discourage investment, as businesses may be reluctant to commit to projects with unpredictable future exchange rates. For instance, the UK's decision to leave the European Union led to a significant depreciation of the pound sterling, creating uncertainty for businesses and investors (Bank of England, 2016).
3. Limited Effectiveness
Exchange rate adjustments may not be effective in all circumstances. For example, if the demand for a country's exports is relatively inelastic, a depreciation in its currency may not lead to a significant increase in export volumes. Additionally, exchange rate adjustments may not be effective in addressing structural problems in the economy, such as low productivity or a lack of competitiveness. It is often necessary to use a combination of policies, including fiscal policy, monetary policy, and structural reforms, to achieve sustainable economic growth.

Conclusion
Exchange rate adjustments can be a powerful policy tool for influencing economic variables, but they come with significant drawbacks. They can be effective in improving the trade balance and stimulating economic growth, but they can also lead to inflationary pressures, uncertainty, and limited effectiveness. The effectiveness of exchange rate adjustments depends on a range of factors, including the price elasticity of demand for exports and imports, the level of external debt, and the overall economic structure. It is crucial for policymakers to carefully consider the potential advantages and disadvantages of exchange rate adjustments before implementing them. Moreover, they should use them in conjunction with other policy tools to address underlying economic problems and achieve sustainable economic growth.

Sources:

IMF (2015). China's Exchange Rate: Developments and Challenges. [Online] Available at: https://www.imf.org/en/Publications/WP/Issues/2015/08/11/Chinas-Exchange-Rate-Developments-and-Challenges-42404
OECD (2000). Japan's Economic Prospects. [Online] Available at: https://www.oecd.org/eco/japans-economic-prospects.htm
World Bank (2019). Turkey Economic Update: Navigating Turbulence. [Online] Available at: https://openknowledge.worldbank.org/handle/10986/31710
Bank of England (2016). The Impact of the EU Referendum. [Online] Available at: https://www.bankofengland.co.uk/speech/2016/the-impact-of-the-eu-referendum