Tag Archives: exchange rate

Should the UK have a policy on the Pound’s exchange rate?

By Peter Martin | Mon 22nd February 2016 - 11:12 am

One point of agreement between the more radical of Post Keynesian economic thought and the mainstream is that there should be little or no intervention in the exchange rate and that the pound should be allowed to float freely. However, whilst many Post Keynesian economists would argue this way, they would also not be in favour of being quite so concerned about the budget deficit which is behind the austerity drive favoured by the mainstream.

An exchange rate policy need not be in the form of an old fashioned peg between the pound and the dollar, or even a basket of currencies, at any one particular rate, but it could be that government tries to ensure that imports and exports are always close to being in balance and always is prepared to nudge the exchange rate either way to try to achieve that. At present the imbalance is approximately 4% of GDP which puts the UK as a whole into debt. Either the government or the private sector has to cover that. There’s no point there being a squabble over just who that has to be. But that is where we are now in our economic thinking.