To start with, devaluation is not an alternative to sovereign default. When a government decides to devalue, savers who trusted the currency to store their wealth, and creditors who bought bonds denominated in the currency, find the value of their assets cut. That’s sovereign default by a different name.
Official net U.K. debt excluding the effect of financial interventions such as bank bailouts is about 1 trillion pounds ($1.57 trillion), or 36,000 pounds per household. […] The U.K. government must either default or modify unfunded promises if it is to resolve those debts. Devaluing the pound would be one way to achieve that.
Partly because Greece, Spain and Italy cannot devalue without leaving the euro, it is often argued that devaluation is a potential savior for countries such as the U.K., which luckily have their own currencies. This is deeply flawed logic. The answer to whatever the U.K.’s current problems are can hardly be more of the same policies that created those problems.
We need solutions to both of these problems [sovereign defaults and banking collapses] and, despite its many fans, currency devaluation addresses neither. It can mask the symptoms of the crisis, but it can’t cure them. Such policies are like plastering over a structural crack in a load- bearing wall: They end in a pile of rubble.