George berates strong dollar

Sir Edward worries about a strong dollar

Sir Edward George, governor of the Bank of England, believes that the strong US dollar is harming the US economy and contributing to European inflation.

He made his comments after attending a meeting at the Bank for International Settlements in Basel, Switzerland.

"The combination of exchange rates is having in many senses perverse effects," said Sir Edward, who is also the chairman of central bank governors from the Group of 10 leading nations.

"It was one of the factors contributing to the imported inflation in the euro zone, which is a factor dampening consumer spending," he added.

Strong dollar policy

His comments challenge the long-standing US strong dollar policy, which was championed by the Clinton administration and is also supported by President George W. Bush.

Writing recently in The International Economy, Lawrence Lindsey, President Bush's assistant on economic policy, said the Bush administration remains committed to a strong dollar.

"The benefits of a strong currency for our country far outweigh the costs," the former central bank governor wrote.

Despite opposition from manufacturers, policymakers believe that a strong US dollar keeps interest rates low and inflation down.

However, the National Association of Manufacturers, an industry trade group, has complained vociferously that strong-dollar policies hurt its members by keeping prices for American goods high on foreign markets.

'Ridiculous' exchange rate

Sir Edward's comments follow similar criticism by the European Central Bank vice president Christian Noyer, who described the euro's current exchange rate as "ridiculous".

He added that it was also pricing the US out of the key manufacturing markets.

The dollar was little moved by Sir Edward's comments, falling only slightly against the euro.

At 1900 GMT, the euro was at 0.8476 against the dollar, off a high of 0.8508.

Upbeat

The central bankers remained fairly upbeat about the US and European economies.

Sir Edward said US inflationary pressures were seemingly contained, and that there was scope for more US rate cuts if needed to boost growth.

He also said a recent rise in euro zone inflation was having an impact on consumer confidence, but central bankers saw many of the factors contributing to the increase as temporary, especially prices for oil and food.

Central bankers were "looking for recovery in the latter part of the year" in the euro zone, he added.

The G10 actually comprises 11 members - Belgium, the UK, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland and the United States.