Basdevant, OlivierDe Wet, Theuns J.2009-10-282009-10-282000-09Basdevant, O & De Wet, T 2000, 'Debt sustainability and exchange rate stabilisation: towards a new theory', South African Journal of Economic and Management Sciences, vol. 3, no. 3, pp. 436-445. [http://www.journals.co.za/ej/ejour_ecoman.html]1015-8812http://hdl.handle.net/2263/11627The sustainability of debt is a crucial issue in developing and transitional economies. In this paper, it shows that a bubble in the real exchange rate could result in a sudden collapse in the sustainability of a country's debt. Furthermore, it is shown that monetary authorities may be unable to control the exchange rate, as its dynamics also depends on that of the debt. Hence, the only feasible policy measure to stabilise the real exchange rate is to increase domestic non-price competitiveness to ensure an improvement in the trade balance of the economy.enFaculty of Economic and Management Sciences, University of PretoriaDebt sustainabilityDomestic non-price competitivenessExchange rate stabilizationExchange ratesMonetary authoritiesTrade balancesForeign exchange ratesArticle