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. By Judy Shelton
http://www.wsj.com/articles/trumps-contribution-to-sound-money-1470868946
The surest way to become alienated from Donald Trump supporters is to invoke the word “global” with regard to trade or economic interests. Even if you embrace the Trump economic agenda for enhancing U.S. competitiveness by lowering taxes and easing regulation, even if you support an “America First” approach for tackling domestic shortcomings from education to infrastructure—there is still a negative stigma attached to proposing any kind of global economic initiative.
Yet by insisting that the U.S. Treasury label China a “currency manipulator” and by promoting trade that is both free and “fair,” Mr. Trump may be laying the groundwork for a significant breakthrough in international monetary relations—one that could ultimately validate the rationale for an open global marketplace and restore genuine free trade as a vital component of economic growth.
The notion that something good might come out of a Trump policy elicits guffaws in certain economic circles. And questioning whether today’s exchange-rate regime serves the cause of beneficial cross-border commerce is tantamount to advocating protectionism. Nevertheless, Mr. Trump’s emphasis on currency manipulation brings into focus the shortcomings of our present international monetary system—volatility, persistent imbalances, currency mismatches—which testify to its dysfunction. Indeed, today’s hodgepodge of exchange-rate mechanisms is routinely described as a “non-system.” Or, as former International Monetary Fund chief Jacques de Larosière termed it at a Vienna conference in February 2014, an “anti-system.”
If monetary scholars once diligently sought to explain the relative virtues of fixed-versus-flexible exchange rates on global economic performance, they have largely abdicated any responsibility for the escalating political backlash against trade that blames currency manipulation for lost business.
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. CONTINUE AT SITE
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