Friday, January 8, 2010

The new gold standard

An interesting piece from the Economist's Buttonwood blog talks about currency markets. The main point of the post is that in a world of low inflation and interest, relative movements in exchange rates are likely to be amplified. But the interesting point to me was the suggestion that the introduction of the Euro has created a new gold standard: smaller Euro-economies are forced to keep competitiveness with the big beasts of Germany and France, or they are forced to take the same measures that gold standard economies did in the thirties. In essence, devaluation is removed as an option and instead they are forced to shed jobs.

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