In its annual report, the BIS said its latest survey of currency trading around the globe, in April 1995, suggested 10 per cent of the foreign exchange market could disappear. With London accounting for far more trading between EU currencies than either New York or Tokyo, banks in the City would suffer most from any further loss of business arising from monetary union.

On one level, this was just a white lie for public consumption. But there was more to it than that. The strong dollar is not all downside. In keeping their currencies depressed, both China and Japan are forced to buy dollar assets, thus helping to support the burgeoning US budget deficit. The effect is also to keep US inflation and interest rates low and consumption high. Far from damaging the US economy through the loss of manufacturing jobs to China, there is a respectable case for arguing that a strong dollar continues to be a boon to both regions.

posted by Administrator at 2:40 pm & filed under Currency markets |