In any case, fixing trade imbalances is not a simple matter of currency adjustment.
Failing that, the necessary currency adjustment becomes much bigger.
That reduction in cost can be passed on to foreign consumers in the form of lower export prices, which could mitigate entirely the intended effect of the currency adjustment, which is to reduce U.S. imports from China.
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Intelligent discretion in monetary policy is capable of doing better than automatic currency-board adjustment.
Some research suggests that such high deficits tend to be unwound quickly, by a rapid downward adjustment in the currency.
Moreover, abandoning the gold standard in favor of free floating currencies was supposed to eliminate currency crises and lead to an automatic adjustment in trade imbalances.
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More broadly, in the United States, for example, the dollar made artificially expensive by capital inflows related in part to its reserve currency status has prevented the exchange rate adjustment needed to balance our trade in goods and services.
Rather, he believes that the government authorities see the appreciation of the Chinese currency as a long-term, structural adjustment.
Rather than making adjustment harder, he says, the currency peg was essential for credibility.
Indeed, Brazil's currency regime may have made much-needed fiscal adjustment harder: now that Brazilians have conquered inflation, they are loth to push through painful budgetary reforms.
In establishing the common currency area, the Euro, the separate countries are essentially throwing away this adjustment mechanism.
The theory of optimum currency areas says, in brief, that countries face a tradeoff between convenience and adjustment.
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