WORLD: WHAT THE WORLD PAYS FOR FLOATING EXCHANGE RATES.

WORLD: WHAT THE WORLD PAYS FOR FLOATING EXCHANGE RATES. - Why do governments 'accept the inevitability of a scenario that has led to such misery and destruction in the past'? Judy Shelton, of the Hoover Institution at Stanford University, here takes to a

Why do governments 'accept the inevitability of a scenario that has led to such misery and destruction in the past'? Judy Shelton, of the Hoover Institution at Stanford University, here takes to an extreme the case against an economic regime which business takes for granted: floating exchange rates. Even if you reject the apocalyptic view in her book title (Money Meltdown), floating rates are plainly a potent and potentially disruptive force.

Indeed, shifting exchange rates are far more important in determining competitive advantage (and profits) than any other factor. Witness the performance of US exports, up 121% since 1978 - with all the rise coming after the dollar's slide began in 1985. Economists attribute perhaps half the export surge to the dollar's relapse to 1978 levels against all currencies, the sharp fall against the yen being decisive.

Likewise, the Major devaluation, not the Thatcher rise in leanness and fitness, is what largely explains the boost in British exports and exporting profits. Yet leaders of British industry were mostly adamant supporters of the European Monetary System, and of the pound's overpriced position in the EMS. Did this apparently self-defeating attitude reflect a yearning for the stability lost when President Nixon abandoned the Bretton Woods system of fixed rates?

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