Sunday, March 9, 2008

Hungarian Irony

"In a bid to boost its inflation-fighting ability, Hungary's central bank will allow its currency to float rather than trade in a band against the Euro. ... 'The previous system was a contradiction in that you targeted both inflation and the exchange rate, which can be conflicting,' said Istvan Zsoldos, a Goldman Sachs Group, Inc. [GS] economist in London. 'Now, if they institute a proper inflation-targeting regime,' he said,, meeting euro-entry criteria, including low inflation is more likely. ... Hungary's move also reflects a global trend, as rising prices prompt countries to rethink linking their currencies to others. ... The global rise in commodity prices is compounding already strong domestic inflation pressures across Eastern Europe", WSJ, 26 February 2008.

What makes Hungary's action delightfully ironic is in 1946 Hungary had the greatest inflation in history when the Pengo was destroyed. In 1946 when Hungary adopted the forint it lopped 29 zeros off its currency. I wonder if Zsoldos ever talks to Jeffrie Currie, also of GS London.

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