By Kraus, James
American Banker , Vol. 151
Is New System of 'Managed' Exchange Rates on Horizon?
PARIS -- As the dollar continues its decline, a senior French economist is arguing that the failure of floating exchange rates is pushing the major Western nations back to a de facto system for controlling currency rates.
"There aren't too many defenders of floating exchange rates lefT," says Jean Denizet, former chief of economic analysis at Bangque de Paris et des Pays-Bas and author of "The Dollar," a newly published study of postwar international relations. "The illusion of flexibility in policy over exchange rates has disappeared," says Mr. Denizet.
According to the economist, a broad consensus for allowing exchange rates to fluctuate within a certain range is already being applied by the Group of Five major industrialized nations -- the United States, France, Britain, Japan, and West Germany.
Since the Group of Five nations agreed in an unusually public way last fall to coordinate efforts to bring down the inflated value of the dollar, there has been talk among bankers and economists about a new era of "managed" exchange rates for mayor currencies. But economic officials of those countries, especially U.S. officials, deny that any target ranges for currencies have been adopted.
No Return to Bretton Woods
Mr. Denizet argues that exchange rates will have to again respect the levels of purchasing power and commercial transactions among nations.
"There is no valid reason why they should be solely determined by speculators on the exchange markets," he asserts.
According to the economist, it is unlikely there will be a return to the formal, institutionalized fixed-exchange-rate system that was agreed on at the famous 1944 international monetary conference at Bretton Woods, N.H., and then abandoned in 1973.
The principal concern now of the Group of Five is to avoid a crash landing of the dollar that could trigger a massive flow of capital out of the United States and force the adoption of an economic austerity program in America that would have a sizable impact on the rest of the world economy, he says.
In currency trading on Wednesday, the dollar offered a mixed performance on the New York and European exchange markets after dipping in Tokyo to a new post-World War II low against the Japanese yen for the third straight day.
In Tokyo, the American currency fell to a new closing low of 167.85 yen, down from 169.35 yen at Tuesday's close. …