Traditional monetarist thinking argues that currency devaluations are counterproductive because they generate additional inflationary pressures. Expectations that future inflation will have to be accommodated undermine the credibility (and hence effectiveness) of current monetary policies. However, these arguments neglect the impact on activity levels and whether there is spare capacity. Hard (or contractionary) monetary policies in recession will cause an equal loss of credibility with investors and forward-looking consumers who will make their expenditures elsewhere. These are therefore circumstances when currency devaluation could be helpful, and without inflationary consequences if rising productivity and spare capacity offset import price rises. Moreover, devaluation within a currency bloc can leave the effective exchange rate unchanged if the bloc is rising against external currencies; while boosting demand at the same time if the within-bloc import/export elasticities are higher than those outside. This paper tests these arguments econo-metrically, and shows that the conditions for a successful Sterling devaluation did exist in 1992.