Global Currency
Jude Wanniski
August 5, 2004


The front page of Wednesday's Financial Times had my eyes popping. Here was the skyline banner alerting readers to Martin Wolf's column on Page 11: "The Case for a Global Currency: A must for a global market economy." I leafed to the page to read what London`s pre-eminent economics commentator had to say and quickly discovered that Wolf has thrown in the towel on floating exchange rates. He writes as follows:

"Participation in two recent conferences, both in Italy, has persuaded me that a single factor helps explain [the most recent set of global crises]: global currency instability. The first of these conferences -- organized by the Aspen Institute Italia -- discussed 'how to live with imbalances.' The second -- the Santa Columba conference organised by Robert Mundell -- the Nobel-laureate -- considered 'plans for a world currency.' Taken together, these meetings encouraged me to question a long-standing belief in the desirability of floating exchange rates."

Hallelujah! Please not bother tracking down Wolf's column to read it in its entirety. How he gets from advocacy of floating rates to a single global currency is painful to read. Wolf is an old-school Keynesian who tries to decipher trade flows from changes in the forex market, and he has become so perplexed by the convulsions in global markets in recent years that he figures it must be because of floating currencies. Of course, I was happy to see he had attended Mundell's Santa Columba conference, which is what leads him to leapfrog from where we are to a single global currency.
There is no mention of in-between scenarios, so Wolf is left with concluding that the idea is one he is "unlikely to ever see. But maybe my children or grandchildren will do so." But as long as he feels comfortable jettisoning the current "non-system," as Mundell puts it, there is an opening for discussion on how to get from here to there with baby steps that begin with a reconstitution of the Bretton Woods system abandoned by Nixon in 1971. Wolf writes: "[Have] floating exchange rates... proved to be the ideal replacement for the unsustainable adjustable exchange-rate pegs of the Bretton Woods monetary regime. The answer is: no."

It may seem that I am making too much of one little column in a relatively low-circulation newspaper on the other side of the Atlantic, but remember I have been saying in the last several months that the time is exactly right for a national discussion about the floating dollar, with my hopes that the Democratic presidential candidate would kick off the discussion by asking publicly why it is necessary for the Federal Reserve to raise interest rates. Senator Kerry hasn`t done so, probably because his economic advisors are wary of opening up the topic because they are as perplexed as Martin Wolf, but perhaps it will now open discussion from the homeland of Lord Keynes. This is a breakthrough, no doubt about it.

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