Posen (BoE) sees dollar preserving leading role, but losing dominance

Date: Wednesday 18 Jan 2012

At a speech yesterday, at the Royal Institute for International Affairs, Bank of England policy maker Adam Posen called attention to the similarities between the present day and the economy in the late 19th century.

Thus, he gave short thrift to the fears expressed by some that there is a long-term risk of experiencing run-way inflation or that banks will actively inflate away government debt. Quite the opposite, he believes that wage-price spirals will be rare and that deflation will occur more often than in the recent past.

In somewhat more technical language, he said that, "the challenge for monetary policy will be to keep inflation expectations anchored in the face of real rather than nominal volatility, coming from both sustained long-term movements in relative prices (...) and shorter, sharper real shocks."

Of particular interest, he believes that central banks will have to deal with shocks from long-term changes in countries’ terms of trade.

Mr.Posen also predicted that the US dollar will remain the leading global currency, although it shall lose its dominant reserve currency status.

AB

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