Friday, January 12, 2001

Currency Machismo The posturing over currency exchange rates best illustrates the shallowness of understanding about economics. The Financial Times is usually a decent publication, but this article about Japan letting the Yen weaken against the Euro and US Dollar is full of macho posturing.

For some reason, people think their currency's exchange rate is a proxy for their national virility. A strong currency, they emote, means that we are a strong country.


The exchange rate has nothing to do with national economic strength (or any other sort of strength, for that matter). There are many benefits to a weak currency, it boosts internal consumption, helps exports, and is just the ticket if your currency happens to be deflating and you're carrying a large amount of public debt.

And oh look, Japan's a country with weak consumption, falling exports, a deflating currency and spiraling public debt. Maybe, just maybe, Japan can boost its economy by inflating away the value of the Yen. Paul Krugman has been making this point forever.


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