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Believing That the Fed Controls the Value of the Dollar Does Not Make It True

Mount Equity Group Tokyo Japan > News > Markets > Believing That the Fed Controls the Value of the Dollar Does Not Make It True

“As a result, the market started to do much of the stabilizing for us, selling sterling when it approached DM3 and buying sterling whenever it dipped below it.”

The above quote is from The View From No. 11, Nigel Lawson’s autobiographical account of his tenure under Margaret Thatcher as England’s Chancellor of the Exchequer. Lawson’s words deserve special attention given ongoing confusion among monetary types about currency-price stability, or lack thereof.

Particularly among those who believe (wisely) that the dollar would be a much more credible currency if it had a gold definition, the view is that the Fed could and should use open market operations to maintain the dollar’s price stability in terms of a gold ounce. The sentiment is good, but it’s rooted in confusion.

Such a belief ignores that the dollar’s exchange value has never been part of the Fed’s portfolio as is. Second, in ascribing a role to the…

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