Nobel laureate backs US 'easy money' policy

14th November 2010, Comments 0 comments

The US Federal Reserve's move to ease monetary policy, which has been blasted by China and Germany, is needed to fix global trade imbalances, Nobel laureate Eric Maskin said in an interview published Sunday in Spain.

"This plan can weaken the dollar and make American exports cheaper; and Chinese and Germany imports to the United States more expensive. It is understandable that China and Germany do not like it," he told the newspaper El Pais.

"But the United States has long had a trade deficit and China an enormous trade surplus. None of these two situations is sustainable. The way to solve this is to weaken the dollar with respect to the yuan," he added.

Earlier this month the Federal Reserve instituted a 600-billion-dollar attempt to reflate the US economy, in a radical monetary step that foreign critics say will trigger tit-for-tat currency devaluations.

"I don't make economic predictions, but I hope a global currency war does not break out. I trust that the United States will be able to explain why this policy makes sense not only for the United States but also for the rest of the world," said Maskin.

Chinese President Hu Jintao called on Washington to adopt "responsible policies" and maintain a stable dollar on Friday on the final day of a summit of the world's 20 largest rich and emerging economies in Seoul.

The G20 gathering was dominated by a Chinese-US row over use of exchange rates as a weapon of national enrichment.

German Finance Minister Wolfgang Schaeuble has called the Fed's move to ease monetary policy "clueless", arguing "there was no point" in pumping money into markets.

Maskin won the Nobel Prize for economics in 2007 along with two other American economists for their pioneering work on mechanism design theory which examines whether trading mechanisms are the best ways of allocating resources.

© 2010 AFP

0 Comments To This Article