The popular wisdom at the time of ERM membership was that sterling had gone in at too high a rate. That was certainly what the Bundesbank thought, though the Bank of England believed that the rate of the pound against the European currencies was acceptable - it was the rate against the dollar, then around $1.90, that was not.
The subsequent decline in sterling, it is now widely accepted, laid the basis for the economic recovery. It would seem to follow that the old rate must have been wrong. Now that the pound is back in its ERM band (though towards the bottom of it) the present rate must presumably be wrong, too.
That is the conventional wisdom and, if it is right, then glum times are ahead. The market is presumably making a mistake and the pound will come back down. But this may take some time, particularly since it will be buoyed up in coming months by two things: the strong dollar and the high interest rates required to curb over-rapid domestic growth. We are not going to get sterling back down quickly unless there is extreme incompetence by the incoming government, which would be an even less satisfactory outcome than suffering the costs of an overvalued pound.
Suppose, on the other hand, that the key problem was not the ERM exchange rate as such but a combination of the over-high interest rates that ERM membership imposed and too high a dollar rate. Then the outlook could be altogether more benign - particularly if one looks at the impact that the surge in the Deutschmark had on the German economy two years ago. The effect of that was to force a radical rethinking by German exporters on how to cut their costs. As a result German manufacturing productivity rose by close to one-third over a four-year period. There has been a cost, for most German employers shed labour and that is one of the reasons why German unemployment is currently so high. But the adverse impact of such a squeeze would be much less marked in the UK for at least three reasons.
First, the currency-induced squeeze would come at a quite different stage of the economic cycle: boom rather than slump. As a result, labour shed by manufacturing has a much better chance of being reabsorbed by the service sector. For anyone caught up in this process, it is a difficult and painful business. But at least it is better that people should lose their jobs at a time when there is a good chance that they can be re-employed elsewhere, rather than (as in Germany) where there are fewer such options.
Second, we know from past experience that the UK economy, unlike the German one, is very good at creating service-sector jobs. It is creating a lot at the moment; in fact one of the worries is that it is creating too many for the labour supply, hence the sharp rise in service sector wage rates over the past four or five months.
Finally, unlike Germany at any time since reunification, the UK is not in current account deficit at the moment, and while all past history should make UK-economy watchers twitchy about the balance of payments, there seems to be no pressing reason to be concerned about the payments' implications of a strongish pound.
So not only is the UK cyclically better-placed to cope with an over-strong currency, but it is also structurally better-placed to do so.
To say all this is not to defend an unreasonable exchange rate: it is simply to say that a somewhat stronger pound may do less damage than the pessimists currently suggest. Insofar as it has the long-term effect of boosting exporters' productivity there is even a bonus.
If that is right it is encouraging, for it suggests that, within broad margins, there are several "right" rates for a currency. Maybe the experience of wildly fluctuating rates particularly through the 1970s and early 1980s has trained commerce and industry to live with uncertainty. But there is the bigger questionwhich concerns whether "right" exchange rates vary over time.
The conventional benchmark for assessing the appropriate value of currencies is purchasing power parity, but currencies can depart from their PPP for long periods, perhaps up to a decade, maybe longer. For the best part of a decade the dollar has been undervalued, and it suffered bouts of undervaluation during the 1970s. Go back, however, to the immediate post- war period and it was clearly overvalued. For the yen, and to some extent the mark, the reverse has been true.
It is now at least plausible that the long secular decline of the dollar against the yen and the mark is past, and that it will tend over the next 30 years to be a strongish currency. Demography, technology, structural changes in trade patterns and so on might account for this.
You can extend the argument to sterling, for the UK also has a significantly less adverse demographic pattern that the "strong currency countries" of Germany and Japan. If this is right, we now would be at an important turning-point in currency trends, with the dollar and the pound (assuming it is not abandoned for the euro) becoming gradually stronger over the next 30 years and the yen and the mark (if it is not dumped, too, for the euro) becoming progressively weaker. The "right" rates will change over time, just as they have in the past - but in a different direction.
But, whatever happens to the long-term trends, there is an argument that in the short term the right rate varies: it varies with the economic cycle. While the cycle exists and while countries are at different stages of the cycle, it is helpful to have a bit of exchange rate flexibility to pump things up or damp them down.
So sterling could have been at too high a rate in 1992, yet still be at an appropriate rate now. It is a simple point: currency movements, far from being a malign shock imposed by evil speculators, are a natural buffer, along with interest rates, helping iron out economic fluctuations.
Seen this way, sterling's strength is helpful and not just because cheaper imports are helping hold down inflation: the rate is appropriate for the economy as a whole, even if it makes life difficult for manufacturing exporters.
Let's hope so. One thing is sure: whether or not the rate is right or wrong is academic, for with one exception there is not a blind thing we can do about it. The exception? Well, we can enjoy holidays on the Continent now that prices are, in sterling terms, back to an acceptable level. Hurry while stocks last.