Edwin Truman of the Peterson Institute asks, "Is universal floating the solution to persistent imbalances?" His answer:
Universal floating is not the answer to persistent imbalances. If the exchange rates of all countries floated, or if foreign exchange market intervention were only occasional, that would help to address some, but not all, of the problems associated with persistent imbalances.
However, such a solution, while intellectually attractive, is not politically feasible at this time.
The authorities of many countries would not be comfortable with such an imposed solution. On the other hand, in today’s world, the very definition of the opposite of a floating exchange rate is ambiguous. Most major currencies float either freely or substantially freely. Consequently, the opposite of a floating exchange rate is not a pegged exchange rate. It follows that, in terms of their nominal effective exchange rates, all currencies either float or are in an intermediate regime. The nominal effective exchange rate is the appropriate economic metric. Don’t tell exporters in Germany and France that their currency is not floating!It is relevant to the anticipation of future trends that attitudes and policies among the major
advanced countries have changed dramatically since March of 1973 and the advent of generalized floating of the major currencies. Official intervention in the foreign exchange markets by the authorities of these countries has gradually come to a stop.13 The authorities of these countries are not likely to resume sustained, large-scale intervention.14 One notable consequence of this evolution is that one has not observed the increases in international reserves by these countries that characterized the earlier post-Bretton Woods years. But that progress, which I think is the relevant word, was slow.Nevertheless, troublesome current account imbalances might continue to persist even if all
significant currencies were floating against each other. One reason is that we know that floating exchange rates do not guarantee either near-zero current account positions, assuming that is the policy objective, nor a smooth adjustment processes economically, financially, or politically to any imbalances that do emerge.A second, related reason is that exchange market intervention and the accumulation or
decumulation of foreign exchange reserves for many countries is not the only, or even primary, way countries can affect their exchange rates. Other macroeconomic policies have effects on exchange rates as well even though those effects are not well parameterized.
Sounds to me like he is saying, "Floating exchange rates might help a little bit, but (1) they won't solve the problem completely and (2) some governments won't go for it. So, let's not get hung up on this as a solution."
