The French View of Foreign Exchange

May 22, 2008

Fixed dollar exchange rates, the keystone of the postwar Bretton Woods international monetary system, were abondoned in 1973. The two governments that most strongly resisted that change 35 years ago belonged to Japan and France, and among G7 countries they continue to mistrust markets to determine something as important as currency exchange values. The French finance minister, Christine Lagarde, called the euro/dollar rate a “major misalignment,” added that “a rebalancing of currencies would be good for all economies” and warned that the weak dollar might promote the imposition of protective barriers to international commerce. It matters greatly, who among officials protests currency values. The gist of Lagarde’s complaints about the dollar echo similar remarks made several times over the past year by French President Sarkozy and fit a long-honored tradition of verbal combat with currency market participants by French politicians. What she said hardly affected the euro. If similar remarks were made by U.S. Treasury Secretary Paulson or ECB President Trichet, representing institutions that are very guarded in what is said about foreign exchange, the world’s currencies would have responded considerably more sensitively.



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