Welcome, this is Anastasia Yuglova bringing you the Cato Daily Podcast.

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In an op-ed that ran in the Financial Times last week, Cato's Vice President for Academic Affairs James

Dorn argued that calls for government coordination of exchange rates to manage global

imbalances are misguided and that exchange rate intervention can wreak

monetary havoc. Writing specifically about China he offered a better way to

handle Asian currencies. He discusses his op-ed with us today.

From your iPad I take a year not in favor of coordinated exchange rate intervention to correct

trade imbalances? That's right I think it would be a mistake for central banks to try to get together and tell us what the so-called optimal

fundamental exchange rate should be that would clear world markets. A much better approach would be to have

independent monetary policy which is aimed at long-term

price stability and then let the market forces determine exchange rates.

After all, no expert knows what the real exchange rate should be.

So the Plaza Accord that they had back in the 1980s

was a temporary success, but also interfered

substantially with monetary policy.

And it led to the Japanese asset bubble and then a collapse of that

bubble when their central bank reverse course. But why should countries worry about

the current account deficit at all? It's just the flip side of a capital account

surplus.

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