Mundell’s Risky Suggestions

(From today’s Wall Street Journal Europe)

In “An Economist Who Matters” (The Journal Interview, June 23), Kyle Wingfield describes Robert Mundell’s suggestion that the U.S. Federal Reserve and the European Central Bank put a floor and a ceiling on the euro and the dollar. Economists may look to nearly every continent for evidence that such a peg system spells short-term success, followed by long-term disaster. A dollar-euro peg would decrease U.S. and EU incentives to compete — to the detriment of the entire world.

Mr. Mundell also quotes Paul Volcker’s dangerously misleading statement that “the global economy needs a global currency.” In fact, we have a global economy in part precisely because we do not have a global currency. If currencies are not permitted to float according to market demand, some other variable in the trade equation will have to give. Frequently, that “give” falls to brutal labor policies (or lack thereof). For a functioning global economy to coexist with democracy, we should allow the market to dictate currency interaction.

The solution to an overvalued euro is not to create a ceiling. Strong-armed policies like the ones Mr. Mundell suggests have historically failed and carried other victims in their wake. Rather than larger bureaucracies fueled by sketchy policy, a more transparent strategy would allow the market to determine whether the euro is indeed overvalued, or if the currency has settled high for a reason.

Kathryn Ciano
Arlington, Va.

Advertisements

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s