Currency paradox

Chris Burford cburford at
Mon Mar 15 15:20:14 PST 1999

Why does an economy like Europe find the relative value of its currency falling simply because it is going through a recession?

Why is the value of the dollar relatively high although it is running a massive trade deficit?

Is it purely that its interests rates are lower in Europe, in order to stimulate the economy again, and still relatively higher in the US to avoid the economy getting out of control?

Or is there some other mechanism at work?

It seems paradoxical from the point of view of simplistic bourgeois economics that at a time of global recession the more exuberant economy finds its currency more highly valued.

Are different functions of a currency - store of value, medium for circulation - clearer in spot versus longer rates?

Chris Burford


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