November 28, 2020

WSJ: Bernanke abdicates world leadership role on currencies

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imagesBy Dan Weil MoneyNews

Central banks around the world are meddling with their currencies through massive easing, none more so than Federal Reserve Chairman Ben Bernanke, according to a Wall Street Journal editorial.

“The Fed is supposed to be the steward of the dollar, which is still the world’s reserve currency,” Journal editors write. “But since the crisis Mr. Bernanke has all but declared that the rest of the world can take care of itself.”

Central banks around the world have had to respond to the Fed’s easing program with easing of their own “to keep their currencies from rising too fast,” the editorial states. “Mr. Bernanke is the band leader in this round of monetary nationalism.”

The Journal editors aren’t too impressed with Tuesday’s communique from the G-7 finance ministers promising, “We will not target exchange rates.”

That amounts to “a policy abdication. If the ministers really want to prevent ‘excessive volatility and disorderly movements’ in currency markets, they would work together to coordinate their monetary policies to produce more stable exchange rates,” the editorial says.

“[T]he G-7’s putative defense of market-determined exchange rates is in part a veil for state manipulation of money in the hope of ‘managing’ the economy.”

As the size of government has grown, the importance of controlling the money supply has increased. “In the U.S. and U.K., a major side benefit for politicians of near-zero interest rates and bond purchases is that they help to finance huge government deficits at rock-bottom rates,” The Journal editors write.

“Fixed or more-stable exchange rates would impose a discipline on government spending that few politicians of any stripe really want.”

Meanwhile, editors of The New York Times argue against government manipulation of currencies in an editorial of their own.

“Such misguided thinking can lead only to chaos and retaliation,” The Times editorial reads. “If all countries were to competitively devalue their currencies, the result would be a downward spiral that would benefit no one, but could lead to high inflation.”

The United States can’t easily be branded a currency manipulator. Indices of the dollar against a basket of foreign currencies have risen since mid-2008 when the financial crisis was brewing.

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