Mundell: Euro too high against dollar

THE euro is overvalued against the dollar, Nobel Prize laureate Robert Mundell said in a newspaper interview.

“The euro is currently overvalued,” said Mr Mundell, who won the Nobel prize for economics in 1999 and is often credited as the intellectual father of the euro for his research on optimal currency zones.

Mr Mundell noted that after being launched at a rate of $1.18, the single European currency fell to $0.82 before appreciating to $1.60.

“It is crazy, completely absurd, that the euro’s exchange rate against the dollar can double in just a few years,” he added in an interview with Germany’s Frankfurter Allgemeine Zeitung.

He said that he would like the Group of Seven (G7) leading economies to recognise that the architecture of the global currency system needed to be changed and to make moves towards creating a world currency.

“We need a better world currency system,” he said.

Mr Mundell said that he did not expect a protracted period of high inflation.

“The inflation rate can rise to 4% or 5% for a time due to the oil price rise.

“But oil has already become cheaper and I expect the price per barrel to fall back below $100.”