Читать книгу Foreign Exchange: The Complete Deal - James McDowell. Sharpe - Страница 13

The fundamental flaw of the floating rate system, experienced on many occasions, is that exchange rates can move to levels far removed from any notion of long-term competitive levels. It could be argued that it is not correct to talk of undervaluation or overvaluation in a floating rate system. After all, it is the market that determines the level and it cannot be wrong. However, speculation is an inherent part of a floating system and this does create overvaluations and undervaluations in the exchange rate.

Overvaluations generate slumps in the internationally exposed sectors and can lead to deindustrialisation and protectionism, while undervaluations will generate inflationary pressures by allowing import prices to rise as the exchange rate falls. This has undoubtedly been the case for the UK, for example, which is dependent on imports of food and raw materials. It has also become an issue for a number of countries which are pegged to the dollar, notably those in the Middle East.

Moreover, a rise in interest rates as part of an anti-inflation package may encourage an inflow of funds. This will increase the price of the currency and will make the economy less internationally competitive. These circumstances detract from satisfactory economic performance. In this context the exchange rate should guide the central bankers on when to ease up and when to restrain. The official mantra, however, is that stability rather than an appropriate level of the exchange rate is their objective. The G7 revealed this intention when it said on 3 October 2009:

We confirm our shared interest in a strong and stable international financial system. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange rates closely, and cooperate as appropriate.

Governments have introduced the goal of economic convergence – sustainable non-inflationary economic growth – as the means to achieve this foreign exchange stability.

The choice of exchange rate system is extremely important as it determines the process and impact of any adjustment and indeed has become the focus of discussion within Europe. I shall now look at these adjustment mechanisms in more detail.