Re: Subsidies ...

From:         Dale Tuttle <dale.tuttle@ciesin.org>
Organization: University of Michigan
Date:         21 Mar 96 02:38:06 
References:   1 2 3
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Terry Schell;x3332 wrote:
>
> In <airliners.1996.161@ohare.Chicago.COM> tnguyen@imag.fr (Nguyen Gia Toan) writes:
>
> >To add another argument to the subsidies debate, why not talk about the
> >exchange parity between US and European currencies ?
> >Economists agree worldwide that the US dollar is not on par with its real
> >value in terms of trade markets and economic value on international
> >financial markets.
> >This looks very much like (not so) hidden subsidies doesn't it ?
>
> Correct me if I am wrong here...
>
> but US currency if free to vary in international markets, i.e., US
> currency's value is based on market economics.  If you feel that there
> is inequity between European and US currencies, perhaps you should
> look carefully at the system European nations use to constrain the
> value of their currencies.

The U.S. government, as do most governments, attempts to influence
the value of its currency.  However, since the demise of the Bretton
Woods regime in 1971, governments no longer have the capacity to
dictate, or set, the value of their currency.  They try to influence
exchange rates, but the success of these activities is mixed at
best.  In fact, overt central bank activity to "prop-up" a currency
often leads to even more problems as the market reacts to a "crisis"
atmosphere.  Thus, most OECD (Organization for Economic Cooperation
and Development) states try not to "use a heavy hand" in the market
place because it can lead to more problems.  In short, governments
influcence exchange rates, but the market-place sets them.  But
remember that the market reacts to government activity (as well as
private activities of course).

Dale Tuttle