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The “real” cure for inflation … Have central banks ignored it?

Forbes Media President Steve Forbes believes that in the rush to raise interest rates to calm inflation, central banks and governments have ignored the most important remedy – the importance of maintaining currency stability.

His statements came later The pound fell 4% to an all-time low of $ 1.0382 in Asia on Mondayafter the new UK government announced last week it would implement tax cuts and investment incentives to stimulate growth.

Currencies continue to weaken against the US dollar as US interest rates continue to rise. The Chinese yuan and Japanese yen also fell sharply as both economies maintain more accommodative monetary policies than the US.

“No central bank today talks – barely – about stable currencies,” Forbes said at the Forbes CEO World Conference in Singapore on Monday. He added that the issue has morphed into a deliberate attempt to fall into an economic depression to fight inflation, according to “CNBC”.

He went on to say that many economists and policy makers have stuck to a stereotypical “doctrine” of targeting inflation by raising interest rates and have failed to look further, for example by taking steps to support currencies.

‘The real cure’

Forbes cited a positive example from the 1980s, when Federal Reserve Chairman Paul Volcker tried to curb inflation by raising interest rates by more than 20%, after which United States President Ronald Reagan supported the stability of the country. economy and increased production by cutting taxes and loosening regulations. .

The Reagan administration has also coordinated global efforts to sell dollars and buy other currencies.

“Today, unfortunately, the Biden administration not only places obstacles to addressing supply-side problems, but the Fed and other central banks also believe it is necessary to push the economy into recession to reduce inflation,” he said. Forbes said, skeptical of the idea that recession is the only way to fight inflation.

The real cure is monetary stability, he said. “You don’t have to make people poor to overcome inflation,” she said.

Currency imbalances can cause problems for economies. A higher US dollar means more expensive exports, while weaker currencies could mean problems like lower foreign exchange reserves.

Forbes suggested using gold to fix currencies, for example, by pegging the US dollar to gold so that the dollar has a fixed value.

He said: “Gold retains its intrinsic value better than anything else on earth. Gold is not perfect as a fixed value, but it is better than anything we discovered more than 4,000 years ago.”

“With unstable currencies, you get less productive long-term investments, which are key to economic growth,” he continued.

Forbes said that after the introduction of the Bretton Woods gold standard in the 1940s – under which the US dollar was pegged to gold and other currencies to the dollar – economic growth rates were much higher.

However, the Bretton Woods system collapsed in the 1970s.

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