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Global Monetary System Needs Reforming, Says Trichet
May 10, 2016, 05:55:00 AM EDT By Dow Jones Business News
FRANKFURT—Jean-Claude Trichet, former head of the European Central Bank, has called for the reform of the international monetary system, with more guidance on appropriate exchange rates, highlighting concerns policy makers have about fluctuations in exchange rates.
In an interview with German financial newspaper Boersen-Zeitung, Mr. Trichet said that he saw "good reasons" to reassess the international monetary system. "We are at a turning point," he said, noting the addition of the Chinese renminbi into the basket of Special Drawing Rights currencies. The SDR is an international reserve asset, created by the International Monetary Fund.
But he said that "the perception of tolerable exchange rate fluctuations has somewhat changed, after the crisis, in the advanced economies. We have to draw lessons from that."
He said that a "return to a Bretton Woods type system with fixed exchange rates wouldn't be appropriate and strict exchange rate ranges would permanently invite speculators to test the limits."
"But to display the medium term equilibrium cross rates between major floating currencies as seen by interested parties, with the stamp of the IMF, could help stabilizing the whole system."
International officials have repeatedly stressed the need to avoid "competitive devaluations," where a country makes its currency cheaper, but in turn hurts other countries' economies by causing their currencies to rise in value. Policy makers worry that such moves would quickly turn into a "currency war."
May 10, 2016, 05:55:00 AM EDT By Dow Jones Business News
FRANKFURT—Jean-Claude Trichet, former head of the European Central Bank, has called for the reform of the international monetary system, with more guidance on appropriate exchange rates, highlighting concerns policy makers have about fluctuations in exchange rates.
In an interview with German financial newspaper Boersen-Zeitung, Mr. Trichet said that he saw "good reasons" to reassess the international monetary system. "We are at a turning point," he said, noting the addition of the Chinese renminbi into the basket of Special Drawing Rights currencies. The SDR is an international reserve asset, created by the International Monetary Fund.
But he said that "the perception of tolerable exchange rate fluctuations has somewhat changed, after the crisis, in the advanced economies. We have to draw lessons from that."
He said that a "return to a Bretton Woods type system with fixed exchange rates wouldn't be appropriate and strict exchange rate ranges would permanently invite speculators to test the limits."
"But to display the medium term equilibrium cross rates between major floating currencies as seen by interested parties, with the stamp of the IMF, could help stabilizing the whole system."
International officials have repeatedly stressed the need to avoid "competitive devaluations," where a country makes its currency cheaper, but in turn hurts other countries' economies by causing their currencies to rise in value. Policy makers worry that such moves would quickly turn into a "currency war."
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