Forbes Media Chairman Steve Forbes believes that in the race to focus on raising interest rates to calm inflation, central banks and governments have ignored the most important remedy, which is the importance of maintaining currency stability.
His statements came after Sterling fell 4% to an all-time low of $1.0382 on Monday in Asiaafter the new British government announced last week that it would implement tax cuts and investment incentives to boost growth.
Currencies continue to weaken against the US dollar as US interest rates continue to rise. The Chinese yuan and Japanese yen have also fallen sharply as both economies maintain more accommodative monetary policies than the US.
“No central bank today is – hardly – talking about stable currencies,” Forbes said during the Forbes World CEO Conference in Singapore on Monday. He added that the matter turned into a deliberate attempt to fall into an economic depression to fight inflation, according to “CNBC”.
He continued, that many economists and policy makers have stuck to a stereotypical “doctrine” of targeting inflation by raising interest rates, and have failed to look beyond that, such as taking steps to support currencies.
‘The real cure’
Forbes cited a positive example from the 1980s, when Federal Reserve Chairman Paul Volcker tried to curb inflation by raising interest rates by more than 20%, after which US President Ronald Reagan supported the stability of the economy and increased production by cutting taxes and easing regulations. .
The Reagan administration also coordinated global efforts to sell dollars and buy other currencies.
“Today, unfortunately, the Biden administration not only puts up hurdles to deal with supply-side problems, but the Fed and other central banks also believe that you have to push the economy into recession to bring down inflation,” Forbes said, skeptical of the idea that recession is the only solution to combating inflation. inflation.
The real cure is currency stability, he said. “You don’t have to make people poor to conquer inflation,” he said.
Currency imbalances can lead to problems for economies. A higher US dollar means more expensive exports, while weaker currencies could mean problems such as lower foreign exchange reserves.
Forbes suggested using gold to fix currencies, for example, pegging the US dollar to gold so that the dollar would have a fixed value.
He said, “Gold retains its intrinsic value better than anything else on earth. Gold is not perfect as a fixed value, but it is better than anything we discovered more than 4,000 years ago.”
“With unstable currencies, you get less productive long-term investments, which is key to economic growth,” he continued.
Forbes said that after the introduction of the Bretton Woods gold standard in the 1940s – under which the US dollar was pegged to gold and other currencies to the dollar – economic growth rates were much higher.
However, the Bretton Woods system collapsed in the 1970s.