Alan Greenspan declares that he won’t interfere with the declining dollar strength. His refusal to step in is somewhat comprehensible since a weaker dollar will make American made products more competitive – American products will be able to sell at a cheaper price abroad. This however makes foreign products more expensive and thus forcing American import to fall – a sort of an implicit tariff imposed on import. And understandable, this irritates other trading countries, especially the European Union.
Recently, a G7 meeting was held in Roca Raton, Florida and one of the main focuses was the free fall of the dollar against other major currencies, notably the Euro and the Yen. The US refusal to control the dollar rate came under fire but somehow, the US diplomats managed to divert the attention given to them. Instead of criticizing a country sandwiched between the Pacific and the Atlantic, the G7 stared at Japan and other Asian nations. The final statement issued by the G7 was:
Excess volatility and disorderly movements in exchange rates are undesirable for economic growth (AFP, Feb 8)
However, the following statement was stressed:
We emphasize that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the financial system, based on market conditions (AFP, Feb 8)
The statement, in spite of it was supposed to be directed at the US monetary policy, is simply amazing. I am simply astounded by how the final statement was worded in such a way that it shifts its attention from the issue of volatility to the lack of flexibility.
Despite the seemingly unified statement by members of the G7, the European members are dissatisfied with the statement. Japan has also shrugged off the criticism from the G7 by stressing on G7’s volatility statement. China and South Korea meanwhile agree with Japan. I haven’t heard anything from Malaysia but knowing that the Malaysian ringgit is also being pegged to the dollar like the renminbi, Malaysian central bank, the Bank Negara should be joining their northern colleagues.
On the other side of the fence, some bankers argue that the weakening dollar strength does not matter in the long run. Well, of course it doesn’t matter because, like what John Maynard Keynes had said almost a century ago, in the long run, we are all dead.
p/s – Hah! just received a warning from Michigan’s ITD for not voluntarily using their new transfer protocol. I want my freedom! LOL!
