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The strength of the American dollar is once more causing tension in the world economy. But are the world’s major currencies misaligned? And can governments do anything about it if they are?
" . . . in recent years, currency crises have taken on a somewhat different character: they have become dominated by the unexpectedly persistent strength of the American dollar."
" . . . America has only consolidated the dollar’s position as the strongest and the pre-eminent reserve currency. . . . such pre-eminence comes at a price. . . . unfair competition from abroad . . . exacerbated by America’s strong exchange rate."
"In Europe, by contrast, pride is hurt by the euro’s chronic weakness. The talk is—and has been ever since the currency came into being three years ago—of the euro being 'undervalued'—it does not reflect the “fundamentals”, some economists argue."
" . . . currency values reflect the price that forex traders place on them and that, in turn, might partly result from an assessment of what politicians and economists like to call the fundamentals nowadays: by this they really mean the relative economic performance of different economies— whether inflation is low, for instance, and productivity is growing. But forex traders have a different perspective from government policymakers—their job is to make money, or at least not to lose it."
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