The creeping dollar threatens the global economy: the boss of the fund calls on the United States to deliberately weaken its own currency
The United States should consider deliberately weakening its own currency to ease strains on the global economy, according to one of the world’s leading fund managers.
The pound is down 17% against the dollar this year, the euro 14% and the yen 20% as the US Federal Reserve aggressively raises interest rates to fight inflation.
Now the president of the France-based Amundi Institute, Pascal Blanque, has said that a short-term solution could involve an international agreement to weaken the greenback, on the model of the Plaza agreement which had achieved a similar goal. 37 years ago.
Purchasing power: The pound is down 17% against the dollar this year, the euro down 14% and the yen down 20% as the US Federal Reserve aggressively raises interest rates to fight against inflation
The ultra-strong US currency hurts other countries by driving up the costs of their dollar imports like oil.
It also strains the finances of companies and countries that borrow in dollars. The pound was the latest to suffer a steamroller, as Japan’s central bank recently stepped in to support its currency for the first time in 24 years.
Blanque said: “The pain its protracted rally is now inflicting even on other developed economies is a stark reminder of its entrenched dominance in financial markets and international trade.”
Currency mismatch will be on the agenda when finance ministers gather for the annual meeting of the International Monetary Fund in Washington next week. G20 leaders meet in Bali in November.
Blanque said: “A short-term solution to deal with the tensions caused by the strength of the dollar could be an agreement to weaken the greenback, like the one that the main economies reached at the Plaza Hotel. [in New York] in 1985.’
The chances of the Fed agreeing to weaken the dollar seem slim at a time when it is fighting hard to bring inflation down, currently at 8.3%.
But Jordan Rochester, FX strategist at Nomura, suggested that the Bank of England’s recent emergency intervention to buy billions of pounds of bonds – despite its struggle with rising prices – could be the “canary in the coal mine” for other central banks.
He said: “Inflation is one thing, but clearly avoiding a breakdown in the financial system is more important for the Bank of England at the moment.”
“The question now is more for the Fed and the ECB – if and when something breaks – how long will they be in?”