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It's an interesting idea, as is usually the case with Keynes, but I'm generally opposed to fixed exchange rates, as least for developed economies.  It sounds like a lot of headache that is not needed.  There is, remember, already an (economic) incentive for countries like China to not peg their currencies and run large current-accounts surpluses.  (I throw the "(economic)" in there because of the fact that many believe China has a political interest in the low yuan.  I'd worry more about the budget deficit than the trade deficit, in America's case, on that, though.)  By doing so, they artificially hold down the purchasing power of their citizens, while propping up that of their trading partners. They also expose themselves to the risk of losing money when (say) the dollar does finally come down to the market level.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Feb 1st, 2007 at 10:26:18 AM EST
[ Parent ]
when (say) the dollar does finally come down to the market level.
Isn't the dollar at market level by definition, in this world of freely floating exchange rates?  or do you mean specifically versus the yuan?  and if the latter, and the chinese floated, I think the yuan would become stronger versus all curriencies, not just the dollar, wouldn't it?
by wchurchill on Thu Feb 1st, 2007 at 07:13:46 PM EST
[ Parent ]


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