On November 10, the world newspaper syndicate website published a report entitled "calm before the exchange rate storm? 》The author is Kenneth Rogoff, former chief economist of the International Monetary Fund and professor of economics and public policy at Harvard University. A similar problem led to the collapse of the Bretton Woods system with a fixed exchange rate system after the war. The excerpts are as follows:
Economists have known for decades that it is extremely difficult to explain exchange rate fluctuations. However, the mainstream inference is that exchange rates should fluctuate dramatically in an environment where global macroeconomic uncertainty exceeds the level most of us have seen in their lifetime. But even if the novel coronavirus pneumonia outbreak in second hit Europe, the euro exchange rate has only fallen by a few percentage points. Negotiations in the US over fiscal stimulus have been patchy. Although the uncertainty of the US election is gradually disappearing, there are bound to be more policy wars in the future. So far, however, there has been relatively little reaction on the exchange rate side.
No one knows exactly what is holding back exchange rate volatility. Possible explanations include widespread shocks, the generous dollar swap lines offered by the Federal Reserve, and large-scale fiscal responses by governments around the world. But the most plausible reason seems to be the paralysis of conventional monetary policy. All major central banks have policy rates at or near the lower effective limit (about zero). Major forecasters believe that interest rates will remain at this level for many years, even in an optimistic growth scenario.
If the effective floor was not close to zero, most central banks would now set interest rates well below zero, possibly from minus 3% to minus 4%. This suggests that even if the economy improves, policymakers may have to wait a long time to be willing to raise interest rates from zero to a positive range.
Interest rates are not the only possible driver behind the exchange rate; other factors, such as trade imbalances and risks, are also important. Of course, central banks have also adopted various quasi fiscal measures, such as quantitative easing. However, when interest rates are basically in the state of "low temperature freezing", the single source of the greatest uncertainty may no longer exist. Just as the Central Bank of London and I have been on the verge of zero interest rate fluctuations, I think the central bank and the Bank of Izzie are on the verge of a crisis. The new epidemic makes it difficult to change the situation of extremely low interest rates.
But the current stagnation will not last forever. Taking into account the relative inflation rate, the real value of the US dollar index has been rising for nearly 10 years, and it may return to the mean at some point in the future. At present, the impact of the second wave of the epidemic on Europe is greater than that of the United States, but with the advent of winter, this situation may soon reverse, and it is even more likely if the transition period after the US election paralyzes health and macroeconomic policies. Although the United States still has a strong capacity to provide much-needed relief assistance to severely hit workers and small businesses, the rise in the share of U.S. public and corporate debt in the global market indicates its long-term vulnerability.
In short, the proportion of U.S. debt in the world market continues to rise, while the share of U.S. output in the global economy is declining. In the long run, there is a fundamental contradiction between the two. A similar problem led to the collapse of the Bretton Woods system with a fixed exchange rate system after the war.
In the short to medium term, the dollar is bound to appreciate even further - especially if the latter waves have put pressure on financial markets and prompted investors to flee to safe assets. Regardless of exchange rate uncertainty, the most likely scenario is that the dollar will remain king in 2030. But it's worth remembering that economic trauma like the one we're experiencing right now is often a painful turning point.