| the basic problem with the current foreign exchange system is that there are no rules whatsoever. since the dollar is the top dog, we are able to spend into oblivion without any noticeable domestic impact, and, we can endlessly print new dollars.
right now, we're exploiting the pre-eminence of our currency to benefit our standard of living. that's fine, but this is not a policy that can last indefinitely. eventually, we will have to deal with our national debt and general account deficit.
suggested solutions by two experst....
nobel laureate robert mundell - close cooperation among the three major currencies (dollar, euro, yen). but cooperation would entail restraints on our economic policy autonomy, and therefore, would not happen due to political reasons.
barry eichengreen - economic and political changes have made a return to fixed rates impossible. his two suggestions are to continue with a system of freely floating exchange rates, or, to unify under a single currency whose value is managed by regional/central banks. but, people have been talking about monetary integration for quite some time now, and the only ones to have done it are the europeans (and whether the euro can last still remains to be seen).
slowly but surely, other countries are making moves to move away from the dollar - but this movement is not uniform. the chinese and iranians, and to a lesser extent the russians, are making movements whereby they will gradually start filling their reserves with a mix of dollars and euros. but then the japanese and much of south-east asia have acquired record levels of dollars (enabling bush to run record high deficits). the biggest no-no in my mind was the fed's refusal to raise rates despite our ever increasing budget deficit.
the only long-term solution that can truly do some good would be if we began a concerted effort to balance our budget and pay down the debt. |