MercoPress. South Atlantic News Agency

Suggestions of more ECB/Fed exchange rate cooperation

Nobel Laureate R. Mundell

Robert Mundell, the Nobel Laureate whose research helped set the foundation for the creation of the Euro, said the US and Europe should cooperate to prevent exchange-rate swings from worsening the global recession.

The Federal Reserve and European Central Bank should peg their currencies to a range of between 1.20 and 1.40 US dollars per Euro, and use that as a basis for establishing "a new world currency," Mundell said in a speech at the Hong Kong Monetary Authority. He also said that Asia should look into creating a regional currency. The soaring dollar and falling gold price were symptoms of a shortage of dollar liquidity," said Mundell, who won the Nobel Prize in 1999. "Had the Fed recognized this shortage and bought foreign exchange to prevent the appreciation, there would probably have been no financial crisis in the fall." The dollar rose 30% from its record low over four months late last year, making it harder for US banks to sell off their troubled assets, Mundell said. Pegged Euro and dollar exchange rates "would just mean that at some stage the ECB or the Fed would have to defend their currency which is probably something they would not want" he said. "I'd argue that flexible exchange rates should help address imbalances rather than cause them. But of course I'm biased", said Mundell. The dollar rose from a record low of $1.6038 reached on July 15 to as strong as $1.2330 per euro on Oct. 28.