| BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Commentary: Dollar-Euro-Yen Parity? Maybe It's Not So Crazy Hands are wringing in capitals everywhere over the turmoil in the foreign exchange markets. From Tokyo to Frankfurt, Washington to London, the plight of the yen, the dollar, and the euro is cause for concern. The yen is too high, the euro too low, and the dollar--well, it's either too high or too low depending on the yen or the euro. If trends continue, one dollar will be worth one euro and one yen (there's serious talk of dropping the two zeros). Maybe, just maybe, all the talk about globalization and convergence means that somehow the world really wants a single numeraire, and maybe it isn't as nutty as it sounds. Perhaps the New Economy is calling for what is, in effect, a new global currency. What would parity of the dollar, yen, and euro give us? It might quicken the transition to a New Economy by creating a giant market for capital, goods, and services encompassing the U.S. (NAFTA nations, actually), the European Union, and Japan. Instead of a $9 trillion American gross domestic product, think 2 1/2 times that--$22.5 trillion. Everything would be priced in equivalent units, unmasking hidden subsidies, taxes, or market flukes. Transparency would reign. Labor mobility would increase, and wages would tend to level. The true global worth of software writers or Web site designers, in hot demand in the advanced economies, would be revealed. So would that of auto workers. Parity would also help fiscal policy. Across the Atlantic, budget policies are already moving in the same direction, toward fiscal rectitude. A single currency would reinforce that shift toward smaller government. Japan, of course, is off on an altogether different fiscal course, going heavily into debt to finance an economic expansion. Yet parity might still be good for Tokyo. True, a strong yen hurts growth in the short run by raising the price of Japan's exports. But a strong yen also helps Japan's consumers, and parity would go a long way toward remaking the country into a consumer- rather than export-driven society. That's a big plus. TETHER. Surely a return to a Bretton Woods world of linked currencies would also make many conservatives downright giddy. They've been waiting for a new gold standard for decades. And the French, who are already losing their franc to the euro, would love to see some tether to the dollar. The downside to parity is clear. Governments would have to give up a major tool for pumping up their economies--and making up for their fiscal mistakes. Devaluation has stood many a leader in good stead. And cries for cheap money, heard over the decades from all sectors of society, from farmers and workers to labor unions and monopolists, would be stilled. The big problem for parity lies in monetary policy. As the euro's birth pangs show, it is difficult for central bankers to tighten or loosen when one country in the union is booming and another is stagnating. But a new millennium may be sending us a message. Currencies are moving to parity. Maybe we should consider accepting what appears inevitable. By Bruce Nussbaum Nussbaum is Editorial Page Editor. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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