By Paul De Grauwe

The recent decline of the dollar against major currencies such as the euro and the Japanese yen has been spectacular. Even more spectacular, but often forgotten, is the long run decline of the dollar against the major currencies in the world. Since 1960 the dollar lost two thirds of its value against the Japanese yen, the Swiss franc and the German mark (since 1999 the euro).

The long-term decline of the dollar appears to be quite surprising especially considering that at least since the early 1990s the US has been seen to produce superior economic results, ie a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation. Yet despite the appearance of superior economic performance the dollar has gone on losing value against currencies of countries deemed to have an inferior economic system. Where does this paradox come from? Continue reading "The dilemma for the dollar"

By Kumiharu Shigehara

Japan’s economic expansion stumbled by late 2007, and in the context of the global economic crisis, it has been trapped in the deepest recession of the post-war era. Initially, the impact of the global crisis on the Japanese economy was expected to be limited because Japanese banks and other financial institutions were relatively insulated from financial turmoil. However, between the third quarter of 2008 and the first quarter of this year, Japan’s exports fell at an annual rate of some 55 per cent in volume terms, the sharpest among OECD countries and double the area’s average rate of decline. Continue reading "Japan needs more aggression in warding off deflation"

From FT:

Time for the ECB to get serious about the overvalued euro - Willem Buiter

Why the euro is not the next global currency - Jean Pisani-Ferry and Adam Posen

Safe as houses - FT editorial on new mortgage regulation

From elsewhere:

The global crisis and central banks in Latin America: Breaking with the past - Luis I. Jácome H., VOXEU

The secret Paulson-Goldman meeting - Felix Salmon, Reuters

Why Is The Chamber Of Commerce Defending Big Banks? - Simon Johnson, Baseline Scenario

So Now We Know Why Lehman Went Under - Naked Capitalism

It is the season of dollar panic. These panic-mongers are varied: gold bugs, fiscal hawks and many others agree that the dollar, the dominant currency since the first world war, is on its death bed. Hyperinflationary collapse is in store. Does this make sense? No. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.

Continue reading "The rumours of the dollar’s death are much exaggerated"

From the FT:

Neil Dennis: Sterling declines after inflation hits 5-year low

UK Daily View: Chris Giles on the significance of a five-year low for consumer price inflation (video)

Peter Garnham: Ragged pound may prove the best ballast for rebalancing

Editorial: The upside of sterling’s slide

Peter Garnham: Weak dollar hides feeble pound

From Elsewhere:

World Bank Crisis Talk: Pity the pound

The Independent: Talking down the pound

Evening Standard: Why it’s a good thing the pound is weaker

From the FT:

Dave Shellock: Overview: gold hits record high as dollar tumbles

Martin Sandbu: The dollar: It would take a revolution to overthrow the greenback

Jennifer Hughes: Mighty dollar turns a paler green

Elsewhere:

Neal Kimberley, Reuters Blog: “Dollar demise”: Inexorable but not sudden

Menzie Chinn, Econbrowser: The Dollar in Doubt?

Simon Johnson, Peterson Institute: Obama’s secret jobs plan; the dollar plunge

Dean Baker, CEPR: Big Deficit Bob Rubin and the Strong Dollar

By Ronald McKinnon

Tensions between the US and China escalated recently when Timothy Geithner, the new US Treasury secretary, suggested that China might be designated as a “currency manipulator’. Premier Wen Jiabao mounted a vigorous defence of China’s existing exchange rate policy at a high level meeting of world leaders at Davos, Switzerland. Mr Wen pledged to keep the renminbi at a “reasonable and balanced level”. Continue reading "China’s exchange rate policy is the quid pro quo for fiscal expansion"

By Eswar Prasad

Timothy Geithner, in his first foray into international economic affairs as US Treasury secretary, has kicked off a public row with the Chinese by accusing them of currency manipulation. The Chinese have vehemently rebutted this accusation and flexed their own muscles, telling the US to get its own house in order before lecturing others.

The world economy, already on its knees, cannot afford escalating economic tensions between China and the US. Continue reading "The US and China: A grand bargain?"