De-Floating The Dollar Back On Agenda?
May 1st, 2009
Arguments over whether to de-float the NZ dollar have picked up. BERL Chief Economist Ganesh Nana says the kiwi dollar is one of the top ten most traded currencies in the world, which subjects the country to unnecessary volatility. Exchange rate volatility hurts exporters who are meant to lift the economy out of recession. But the recent rise in the dollar is a stumbling block towards recovery.
Nana says the currency’s current volatility can be blamed partially on the carry trade, but is also a reflection of the market not understanding what is happening. He lashes out traders saying “the finance markets are trying to say these are all rational movements [in the dollar's value]… and I think that’s just inflating their own feelings of self importance.”
He says financial markets have “hijacked” the dollar and what’s needed is an exchange rate target - with the associated policy mechanism and institution to ensure it can be met. He’s calling for the use of a Singaporean “managed exchange rate” model, allowing the market to influence the exchange rate, but having the Reserve Bank back-stop any shifts outside target boundaries. Other business commentators have suggested more drastic measures to counter the steadily rising dollar. Some have called for “quantatative easing” or printing of money.
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