from the Wall Street Journal, Judy Shelton in Trump’s Contribution to Sound Money The source of trade anxiety is a broken global monetary system that distorts price signals with sharp currency moves.
No serious economist would claim today that the “dirty float” intervention tactics practiced by numerous countries would be remotely acceptable within the freely flexible exchange-rate system envisaged by Nobel Laureate Milton Friedman. Nor would anyone suggest that any coherent mechanism exists comparable with the fixed-rate system anchored by a gold-convertible dollar that reigned in the decades following World War II.
Nobel Laureate Robert Mundell has consistently argued for the restoration of a system of formally maintained exchange rates to reduce uncertainty and promote growth. Yet the lack of willingness among the great majority of economists to recognize the imperative for global monetary reform to avoid a breakdown in global trade relations has left policy makers in the lurch. Faced with mounting demands to address currency manipulation through “strong and enforceable provisions”—i.e., tariffs—those who support free trade are being forced to consider the broader implications of a sluggish world economy that has become overly reliant on central banks.
Global money management is a difficult and complicated task but its implication on nations’ economies is enormous. The float creates both a discipline and a risk of manipulation. In the absence of a standard such as gold the fixed exchange rate system is also subject to manipulation.”As former Federal Reserve Chairman Paul Volcker has observed: ‘Trade flows are affected more by ten minutes of movement in the currency markets than by ten years of (even successful) negotiations.’” (tips to Greg George)
Economist Greg George also commented, “That being said, a free trade policy with clean floats is preferable to dirty protectionism all day long. “
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