A year ago, most analysts agreed: the dollar could only go down against the euro and the other main currencies. The huge US current account deficits had become unsustainable and called for a big decline of the dollar. A year later these analysts proved to be wrong. The dollar went up by close to 15 per cent against the euro. What went wrong? Let me answer the question by telling a story about Belgian chocolates.

A few weeks ago an interesting experiment was undertaken at the Brussels food fair, a yearly affair where food lovers wander around among the many stalls stuffed with all imaginable delicacies. A shop was put up selling boxes of Belgian chocolates. The first day the price was set at €9 for each box. Sales went well. The next day the price was raised to €15 per box. Steeped in economic theory, you might think that demand now declined. Wrong. Demand doubled. On the third day the price was lowered to €2 for each box. Demand for chocolates collapsed. What went wrong with the law of demand?