Should the Reserve Bank try to force down the value of the Australian dollar? Will it try? How exactly would it do it and what would be the consequences?
The RBA is clearly thinking about the issue. It was a subject of considerable discussion at the board meeting last Tuesday, which decided to leave the official interest rate unchanged at 3.5 per cent.
That captures both the lure and the RBA's dilemma. With official interest rates in Europe, the US and Japan effectively at zero, our 3.5 per cent and the higher rates the banks will pay for money look attractive.
Indeed, the US Fed has promised to keep its official rate at zero "at least" to the end of 2014.
Even so, global money keeps pouring into US dollars and into US treasuries. Investors are prepared to lock their money away for 10 years in US treasuries for interest of only 1.5 per cent a year.
They are doing it because of perceived security - that they'll at least get 100 cents in their investment dollar back - in a world of financial uncertainty.
Indeed, investors are prepared to accept getting back only 99c in their investment dollar for safety, and earn no interest at all, to park their money in safe Swiss francs.
Switzerland is the "model" for those calling for Australia to intervene to force down the value of the Aussie.
The Swiss have said they will not allow their Franc to go higher than 1.20 against the Euro. That is to say, one Euro won't be allowed to buy less than 1.20 Swiss francs.
How do they do it? By the Swiss national bank being prepared to buy all the euros (and other currencies at the equivalent exchange rates) that are offered. And by printing the necessary Swiss francs to do so.
By the end of July, the Swiss national bank had accumulated foreign currency holdings of 406 billion francs ($390 billion).
This is exactly what our RBA would have to do. It can't just "order" the exchange rate to be, say, parity with the US dollar (or 95c or 85c).
It would have to buy the foreign currencies to achieve, to try, to achieve the rate. Actually, if it did intervene, it wouldn't be aiming for a rate, but a range.
The problem is that Australia has become so attractive, any indication that the RBA was trying to force down the dollar, would spur tens, indeed hundreds, of billions of dollars to flow here.
We don't only have the higher interest rates; we are one of the half-dozen or countries left that are still ranked Triple-A; and because of the rise of China, we are seen as a perfect proxy for indirectly and more safely investing in that country's growth.
So in a very basic sense, any move to intervention could backfire. The RBA might be unable to move the dollar down much at all. But to "achieve" even that will have caused it to print hundreds of billions of dollars and hand them to foreigners.
Further, it's not clear that it would want to succeed anyway. The strong dollar has been helping keep a lid on inflation. Which in turn has enabled interest rates to be cut as much as they have been.
Former RBA board member Warwick McKibbin, who has come out in support of forcing down the dollar, has also said that it would need to be accompanied by raising rates. A lot of people would be unhappy with that trade-off. It would whack the housing and property sectors.
Switzerland only really started intervening when its official rate was at zero; and they actually have overall deflation, falling prices.
There's a much more basic objection. Why would you want the RBA to pile up holdings of euros in particular, when everyone else wants to sell them, because the whole euro exercise might be about to collapse?
Why should we want to allow foreigners to buy our currency cheaper; which means they also get to buy our assets cheaper than otherwise? At the same time, making their assets more expensive to us.
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