How to avert currency chaos

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The Independent Online
From Mr Spencer Livermore

Sir: The main thrust of much of your newspaper today was that turmoil on the foreign exchange markets raised doubts over the whole possibility of a single currency. You rightly acknowledge the reasons for the current financial instability, but from this you draw completely the wrong conclusions.

Fundamentally, the pressure on European currencies has been caused by the German mark's attraction of funds from the US dollar. As the mark has appreciated, so in turn the weakest currencies within the ERM have depreciated. The rise in the mark is, as such, a product of the dollar's weakness. However, since most analysts agree that the dollar is undervalued, it follows that the strains in the ERM will subside once the dollar regains some of its strength against the mark.

Far from being the product of fundamental economic weakness in the member states involved, the entire currency crisis has been a result of exogenous factors: the weakness of the dollar and the concern over the outcome of the French presidential elections. Once again the markets have been permitted seriously to destabilise the exchange rate policies of members of the European Union.

The only satisfactory way to prevent this from happening regularly is to move to full economic and monetary union as soon as possible. This would have the undoubted benefits of allowing currency stability within the EU.

Recent events on the foreign exchange markets, far from weakening the case for a swift move to EMU, have actually strengthened the arguments for lasting currency stability, and therefore for economic and monetary union.

Yours sincerely,


London, SW6

7 March