Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!


Time to rethink exchange rate regime

Comments on “Aust dollar clears 107 US cents”, see NEWS – Currencies, http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-clears-107-US-cents-record-high-pd20110421-G4SRZ?OpenDocument&src=hp2

Two points: 1. the $A has entered uncharted territory and no one knows how high it will go in the next year or so. It may go as high as $US1.10, 1.20 or even 1.50, though few people would dare to say the last figure. The point is no one is sure about it.

2. Given the pervasive effects of the high $A, is there a case for some RBA intervention to keep it lower? Why does the RBA continue its conventional operations and stay away from intervention while the US Fed has been doing unconventional quantitative easing? Isn't time for the RBA to catch up with the changed international finance and monetary politics?

I think those are legitimate questions to ask and the RBA needs to have a serious review of what is best for Australia, getting out of its comfort zone of conventional thinking and conventional operating.

While free exchange rate has been the norm and dominate economic theory, excessive movements and fluctuations of a currency against others, especially the ones that are having a big effect on the country such as the $US for Australia given that many commodities are priced in $US, may not be optimal or desirable.

If the GFC has promoted a rethink of macroeconomic theories, a thorough review of international exchange rate regimes is also overdue and equally important.

No comments:

Post a Comment