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10-11-2007
The dollar strain
| Both Canadian and European central bankers have this week eventually echoed concern on the level of exchange rates beteween their respective currencies and the dollar. It has been long since that happened last time (Trichet last expressed comments on exchange rates back right after the introduction of the single currency); the underlying conviction beeing that cental banks ought to concentrate on price stability while currency exchange rates are set by the market. What has not been recognized is that the absence of intervention on currency movements poses indeeed the biggest threaten to price stability. Commodity prices have reacted more than proportionally to dollar devaluation, to the point that letting the dollar go has also meant accepting oil at 100 dollar a barrel. But effectively correcting exchange distortions means coordinating efforts among central bankers. So far they have, to the opposite, acted as globalization had not been in place since many years . |