An export boost related to a weakened dollar may be the “main effect” of the Federal Reserve’s plan to buy $600 billion more in Treasuries under quantitative easing, according to Robert Skidelsky, an emeritus professor of economics at Warwick University in London.
“If quantitative easing comes in, that should drive down the dollar,” Skidelsky said in an interview today on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “That’s going to be its main effect. I don’t think it’s going to have much effect on domestic prices, on the domestic economy, but it will have an effect on the export economy, and that should be beneficial.”
The U.S. trade deficit narrowed in September by 5.3 percent to $44 billion as exports climbed to the highest level in two years, Commerce Department figures showed today. The median forecast in a Bloomberg News survey of 75 economists was for a gap of $45 billion.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, dropped 1.9 percent in October as investors anticipated the Fed’s decision on Nov. 3 to buy more government debt.
Policy makers across the world should address global imbalances in trade and the currency markets to avoid a revival of “the currency wars of the 1930s” that exacerbated the damage caused by the Great Depression, said Skidelsky, 71, a member of the House of Lords. “That would be disastrous for recovery. There’s got to be an agreement on exchange rates.”
The Bretton Woods agreement in 1944 linked currencies around the world to the price of gold and restricted their fluctuations versus the dollar, requiring intervention by participants to comply.
“I’m looking for a new Bretton Woods,” Skidelsky said.