The Foreign Service Journal, July-August 2007

Undervalued exchange rates pro- vide an artificial price advantage that increases exports and attracts invest- ment. The costs are largely borne by countries with cleanly floating ex- change rates; in particular, the mem- ber states of the European Union, United Kingdom, Australia, New Zea- land, Canada and the U.S. The loss of jobs and investment in these econo- mies is real, but the growing protec- tionism that Trachtenberg decries is a misguided response to it. And, if the underlying problem is not corrected, the backlash will worsen. The answer is, in theory at least, rather simple: negotiate through the International Monetary Fund an exchange-rate regime in which coun- tries are limited in their foreign exchange reserves to a specified per- centage of their gross domestic prod- uct or foreign trade. Countries could build reserves up to a point, but the U.S. and like-minded countries would no longer be the patsies for those whose manipulation is disrupting the world trading system. Creating such a regime will, of course, require long and hard bargaining, as well as the support of those like Trachtenberg who have been slow to recognize that free trade requires freely floating exchange rates to distribute its bene- fits evenly. Malcolm H. Churchill FSO, retired Washington, D.C. NATO Is Obsolete Many thanks for the insightful fea- tures on Russia in the April Foreign Service Journal. With the Soviet empire and system gone, where does the current Rus- sian-American friction originate? In my opinion, the question has one answer: the North Atlantic Treaty Organization. We created NATO to preserve a weak Western Europe from further onslaught by the Red Army after the defeat of Nazi Germany. After World War II, the Union of Soviet Socialist Repub- lics constituted an empire of which the czars could only have dreamed. The Soviets even pushed national boundaries to the west. But the Soviet dream and integrated empire dis- solved with the end of the Cold War. In my opinion, with the termina- tion of the Soviet Union and the con- comitant end of the Soviet Empire’s threat to Western Europe, the need for NATO ended, too. Just think of the savings if NATO were abolished! Yet, based on some unexplained infat- uation, we have insisted not only on its continued existence, but its expansion. For what purpose, you might ask if you were Russian? Who is the enemy of NATO? Would we be pleased if someone organized our former em- pire against us? Since an expanded NATO stuck a finger in the Russian eye, is it any wonder that the Russians look to sup- port nations such as Iran? To address Moscow’s legitimate concerns, we could disband NATO— especially now that we have helped puff up former Soviet satellites as our allies. Or we could convert it into a European organization without our participation. Whatever we do, we need to move boldly to integrate Russia more fully and firmly into Europe. At the same time, we should reduce our military role there. Why not stress Europe for the Europeans and concomitantly strengthen an alliance between those nations and the Organization of American States? Sheldon Avenius FSO, retired Miami, Fla. New IRS Rule Hurts the FS I appreciated the April AFSA News article “Foreign Earned Income — Important Change in IRS Rules,” and I was flattered that it employed the 8 F O R E I G N S E R V I C E J O U R N A L / J U LY- A U G U S T 2 0 0 7 L E T T E R S