|
THE
Philippines can only resort to a fixed exchange-rate
system to achieve a more stable economy if it has
achieved a balanced budget and if there is strong
leadership in the government, Nobel laureate for
economics Robert Mundell said on Thursday.
Speaking
to reporters after delivering the first of a series of
lectures organized by the International Peace Foundation
to bring Nobel laureates to Southeast Asia, the
professor asserted that any country, including the
Philippines, can implement a fixed exchange-rate system
“anytime it is prepared for it.”
“You
have to have a balanced budget and enough foreign
reserves [among others], and if government officials
agree with it and have decided on what the exchange rate
is going to be,” Mundell said in an interview after his
speech at the De La Salle University, one of the sites
of the lecture series dubbed “Bridges: Dialogues Toward
a Culture of Peace.”
He
proceeds to the Ateneo de Davao University on Friday,
November 16.
Mundell
explained that having fixed exchange rates means a
process in which the central bank fixes the price of foreign exchange and allows
the money supply to move in a direction that keeps the
balance of payments in equilibrium.
In his
debate with economist Milton Friedman, Professor Mundell
said that for countries with lower rates of inflation—or
about 5 percent a year—a fixed exchange rate could be
the best monetary rule that the central bank can adopt.
This
year, the country’s inflation rate has been within 2.2
percent to 3.9 percent. The Bangko Sentral ng Pilipinas
(BSP) is projecting full-year inflation this year to be
between 3 percent and 4 percent.
“Equilibrium under fixed exchange rates means that the
country’s money supply is directed by its balance of
payments. When the balance is in surplus, the money
supply expands and that increases expenditure in goods
and securities and that corrects its surplus,” he said.
However,
he said not all currencies can adopt the fixed exchange
rate at present. An example, Mundell said, would be the
US. In his debate with Dr. Friedman, he had said that
big countries like the US cannot fix its currency to
smaller countries.
Nonetheless, Mundel said a fixed exchange rate with the
dollar is a viable alternative for countries like
Canada
or Mexico and other Latin American countries.
Mundell
is considered one of the foremost experts in the field
of international economics and was the expert who
prepared the first plans for a common currency in Europe
or the development of the Euro.
He was
also a professor of economics in Columbia University in
New York and the Graduate Institute of International
Studies in
Geneva.
He is
also an adviser for the United Nations, the
International Monetary Fund, World Bank, European
Commission, the Federal Reserve Board, the US Treasury,
and the Government of Canada. |
