Shonfield, Andrew
December 1979
Foreign Affairs;1979 Special Issue, Vol. 58 Issue 3
Academic Journal
This article presents information regarding the condition of the world economy in 1979. To that extent Germany, with its overwhelming wish to avoid any appearance of even a small increase in the rate of inflation at home, was responsible for holding back an upsurge in the dollar exchange rate that would have imposed a severe cost on those who had earlier speculated against it. As some observers argued, the occasional demonstration that speculating on the expectation of a weak dollar was not always an absolutely safe one-way bet might have had a salutary effect on the subsequent mood of international currency markets. But the German central bank's answer to such criticisms, namely that over time it fulfilled its function to moderate the violent movements, both upward and downward, in the market value of the dollar, had some force. Over the period as a whole, including the subsequent movement of exchange markets against the U.S. currency, the Germans ended up with a large net acquisition of dollars. This the confidence expressed spokesmen early in 1979 that the tide of adverse forces was already being decisively reversed turned out to be premature.


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