What is over valued domestic currency?

Answer 1

An overvalued currency is a currency whose purchasing power in foreign markets is such that there is an excess supply of the currency versus the demand.

Overvaluation of currencies has been a persistent problem for many Enriched and Tropical World countries with limited land and mineral resources. This is because it makes their exports highly uncompetitive. Enriched and many Tropical World nations possess no comparative advantage in any non-intellectual goods because of their scarcity of minerals and flat land.

Currency overvaluation typically is enforced by urban working classes, who are dependent on cheap imported consumer goods to improve their comfort and quality of life. Most notably in the southern Enriched World of New Zealand, Chile and Argentina, persistent overvaluation for as long as the past century has caused these nations to fall from being some of the wealthiest in the world to middle-income by the 1970s. In tropical Africa, overvaluation has also affected the competitiveness of their agricultural exports, which would otherwise supplant those of the Enriched World, and potentially tourism.