At a closed-door financial conference at Cernobbia, Italy, on September 4th, the European Central Bank President, Mr Wim Duisenberg, reiterated yet again his fundamental view on the raison d'etre of the ECB thus:

"The ECB's monetary policy objective is the internal value of the currency, and in the longer term the euro's internal strength will be reflected in its external value."

In a similar tone, some days earlier, he told the Dutch paper, De Volkkrant, that he was broadly satisfied with the current value of the euro: "At the beginning of the year, due to euphoria, maybe the euro was valued too high. Then it slipped, maybe too far. The current value is understandable [in view of] current economic developments."

Ever since the euro's launch, economic commentators have been keeping a close weather-eye on its health. Initially, attention focused on the new currency's viability, but that concern has now largely been replaced by a preoccupation with its exchange rate, specifically the perceived danger of it falling below parity against the US dollar.

The euro has lost about 6 per cent of its value against the dollar since its launch at the beginning of this year. On July 13th it hit a record low of 1.01 against the dollar. US dollar parity appears to be regarded by many economic commentators as some sort of benchmark against which the health of the euro should be evaluated.

This poses the question as to what real, as opposed to imagined, significance attaches to a one-for-one parity between any two floating currencies. The short answer is of course none.

Had the euro been defined initially as being the equivalent of £7.87564 instead of £0.787564 (and similar multiples with all the other participating currencies), then the value of the euro would today be hovering just above $10 rather than just above $1. Would that have made the euro a stronger currency? Patently not: nothing in the real economies of either currency zone would be any different to what they are today.

In a very similar vein, much off-the-cuff economic commentary about the perceived "weakness" of the pound vis-a-vis sterling has stemmed from just such a preoccupation with taxonomy. Had the pound, at its inception, been christened the Irish dollar rather than the Irish pound, would not commentators today be rejoicing on the current "strength" of the Irish dollar vis-a-vis the US dollar, rather than on the pound's currently perceived "weakness" vis-a-vis sterling? The Irish currency would, of course, still be trading at around $1.30 and 0.83 sterling only its name would be different.

It is fairly clear then that to use the concept "parity against the US$" as an index of the strength of the euro is simply to employ an elastic measuring tape. One must look elsewhere for a more meaningful yardstick.

In order to make any progress on this front, one basic question needs to be addressed concerning the implications of the terms "strong" and "weak" as applied to floating currencies. The use of such a quasi-medical paradigm to describe the state of the euro is extremely unhelpful. Terms such as "strong" and "weak" inevitably carry connotations as to the state of the currency's health: strong means healthy, whereas weak means sickly.

In the bygone days of fixed exchange rates, a currency was adjudged strong if the ability of the Central Bank to maintain its posted value was not in question and conversely if it were weak. This all had to do with the adequacy of a country's foreign exchange reserves.

However, we no longer live in such a world of fixed exchange rates. In today's Europe, the ECB abjures any such role in supporting the external value of the euro, as the opening quote from Dr Duisenberg clearly illustrates. Consequently, at any given point in time, the exchange rate of the euro represents a transparent financial market assessment of the discounted prognosis of (predominantly) future growth rates, price levels and interest-rate policies in both the euro zone and the US.

It is probably unrealistic to hope that we can, in the foreseeable future, escape from the terminology of "weak" or "strong" when discussing the external value of the euro. However, an alternative "low" or "high" surely presents a much more accurate and value-free paradigm: low meaning that Europe's exports and employment prospects are being bolstered, whereas high means the opposite.

The mirror-image, on the financial side, in this danse-macabre between the euro zone and the US, concerns the ECB's current interest-rate policy.

Any increase in euro interest rates must have the inexorable consequence (and, indeed, most probably the objective) of attracting in financial capital to the euro zone or, to put it less charitably, of suturing any imminent outflow of such capital.

However, any resulting higher interest-rate regime in Europe would, by definition, be deflationary to the real sector of that economic zone. Given Dr Duisenberg's weltangschaung, as quoted above, the ECB's priority in this area must be the promotion of internal growth, with the expressed confidence that the external "strength" of the euro will follow.

The clearly expressed judgment of the rest of the world in recent months has been that the neo-classical invisible hand, upon which the ECB seems to be so heavily reliant for a boost to euro-zone employment and output levels, appears to be suffering from a bad attack of arthritis.

Terence Ryan, Fellow Emeritus TCD, has lectured and published extensively in the fields of Finance and International Economics over many years.