Unctad wants global exchange controls

A call for the return of exchange rate controls has been made by the United Nations Conference on Trade and Development (Unctad). In a report on the global financial crisis released on March 19, Unctad says exchange-rate adjustments cannot be left to the market and must be subject to multilateral oversight. Changes should reflect differences in rates of inflation between trading countries, the study recommends. That way, real exchange rates will be kept constant, allowing fair competition between producers from different countries and preventing potentially damaging speculation. The report, titled ‘The Global Economic Crisis: Systemic Failures and Multilateral Remedies’, was written by economists serving on Unctad’s Secretariat Task Force on Systemic Issues and Economic Cooperation in advance of upcoming international conferences on the global economic crisis. The report notes that the fallout from short-term currency speculation has contributed to sharp collapses in the values of some national currencies as the global economic crisis has intensified. According to Unctad, the rand has been among the biggest losers. The biggest falls have been the Icelandic krona which declined by 51% (against the US dollar) in the second half of 2008, the Hungarian forint (34% against the dollar), the South African rand (38%), the Brazilian real (34%), the Turkish lira (33%), the Mexican peso (29%) and the Chilean peso (28%). Over the past two decades, short-sighted domestic policies and an unregulated international financial system attracted financial investors to leverage the short-term opportunities provided by divergent monetary policies in different countries, the study notes. Under the "carry trade," billions were borrowed from countries where interest rates were low and invested in countries where interest rates were high, generating large short-term profits for investors and artificially inflating the value of the currencies of the capital-receiving countries. As the financial crisis hit, the highly leveraged exchange-rate "bubble" burst.