Reevaluate That Revaluation Idea, Rudi
I felt that Professor Rudi Dornbusch's column suggesting Asian currency revaluation ("It's time to end Asia's 30-year free ride," Economic Viewpoint, Mar. 1) was misleading and ill-conceived.
He suggests the Asian countries revalue their currencies by 30% as one measure to alleviate trade imbalances. Yet when I came to Japan in 1985, the dollar was worth 248 yen; today, it buys a measly 119 yen, and the Japanese trade surplus with the U.S. is higher than ever. Will an additional 30% yen revaluation necessarily lead to the change Dornbusch desires?
Some of the Asian currencies float, and some have a managed float to smooth out volatility. But with the exception of Hong Kong, the exchange rates reflect the economic realities of interest rates, inflation, trade balances, and capital inflows. Just like the textbooks tell us.
James M. Bogin