Nobel winner made a convincing case for a fixed exchange-rate system

The Nation, November 13, 2007

Your report on the recommendation of Prof. Robert Mundell, the 1999 Nobel Laureate for Economics, for Thailand to adopt a fixed exchange rate rather than subject itself to a floating regime pleases me immensely. This was also the recommendation previously made by Dr. Olarn Chaipravat and Dr. Ammar Siamwalla, our own top economists, whose views were previously rejected roughly by both the governor of the Bank of Thailand and the finance minister.

Please allow me to reiterate Prof. Mundell's rationale for advising Thailand, a medium-sized and open economy, to follow China, Austria, the Netherlands and Hong Kong in adopting a fixed exchange rate, possibly based on a pool of international currencies.

First, a fixed exchange (or sometimes coyly called a targeted exchange regime) provides certainty and an important basis of economic stability with clear-cut mechanisms and as such is infertile for speculators. China's success is attributed to this unorthodox regime of a fixed exchange rate. (Malaysia is another country that has benefited with a respectable yearly growth rate. Thailand has to defend its position at a huge cost against speculators because of the International Monetary Fund's recommended system of floating in 1997).

Second, the current misalignment of global exchange policy requires a global crisis to realign the world from the US dollar, hinting that the current imbalance of US/China trade cannot easily be adjusted. The current US sub-prime mortgage problem is considered a blip and not a crisis and thus not likely to serve as a catalyst to put the world's exchange rates in order.

I hope this is a final wake-up call and those who matter will take note and act upon it now rather than be sorry afterwards.