This article is concerned with the determinants of economic growth, and, in particular, with the role of policy in directing the pattern of growth in developing economies. It discusses the definition of the real exchange rate and the different methods of measurement. It then examines the empirical basis for the notion that the "real exchange rate is endogenous (RERIE). Next, it explains the mechanism through which exchange rate undervaluation is likely to work -- by increasing the profitability of investment, leading to higher growth and savings and, therefore, to the operation of a virtuous cycle of investment-growth-savings. Empirical results are then presented for the effect of currency undervaluation (and overvaluation) in standard growth models. This section documents the large empirical role of two variables related to currency undervaluation: the valuation in the initial year, and the average change in undervaluation over the period examined. The latter variable is found to be particularly significant, and it helps explain the fast growth episodes of several economies. In the final section, it offers some policy conclusions.