Archive for the ‘International finance’ Category
Feb 14th 2013, 23:24 by G.I. | WASHINGTON, D.C.
Brazil’s finance minister coined the term “currency wars” in 2010 to describe how the Federal Reserve’s quantitative easing was pushing up other countries’ currencies. Headline writers and policy makers have resurrected the phrase to describe the Japanese government and central bank’s pursuit of a much more aggressive monetary policy, motivated in part by the strength of the yen.
The clear implication of the term “war” is that these policies are zero-sum games: America and Japan are trying to push down their currencies to boost exports and limit imports, and thereby divert demand from their trading partners to themselves. Currency warriors regularly invoke the 1930s as a cautionary tale. In their retelling, countries that abandoned the gold standard enjoyed a de facto devaluation, luring others into beggar-thy-neighbor devaluations that sucked the world into vortex of protectionism and economic self-destruction.
But as our leader this week argues, this story fundamentally misrepresents what is going on now, and as I will argue below, what went on in the 1930s. To understand why, consider how monetary policy influences the trade balance and the exchange rate.
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The world should welcome the monetary assertiveness of Japan and America
Feb 16th 2013 |From the print edition
OFFICIALS from the world’s biggest economies meet on February 15th-16th in Moscow on a mission to avert war. Not one with bombs and bullets, but a “currency war”. Finance ministers and central bankers worry that their peers in the G20 will devalue their currencies to boost exports and grow their economies at their neighbours’ expense.
Emerging economies, led by Brazil, first accused America of instigating a currency war in 2010 when the Federal Reserve bought heaps of bonds with newly created money. That “quantitative easing” (QE) made investors flood into emerging markets in search of better returns, lifting their exchange rates. Now those charges are being levelled at Japan. Shinzo Abe, the new prime minister, has promised bold stimulus to restart growth and vanquish deflation. He has also called for a weaker yen to bolster exports; it has duly fallen by 16% against the dollar and 19% against the euro since the end of September (when it was clear that Mr Abe was heading for power).
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Feb 16th 2012, 19:16 by G.I. | WASHINGTON D.C.
America’s latest anti-China bill tackles a problem already being solved
Oct 15th 2011 | from the print edition
[Greg Ip] THE global economy is sicker than a man with a bellyful of bad oysters. The last thing it needs now is a trade war. Yet on October 11th America’s Senate passed the Currency Exchange Rate Oversight Reform Act, which would allow any “fundamentally misaligned” currency to be labelled a subsidy subject to countervailing duties. No prizes for guessing which large Asian nation the senators have in mind.
Variants of this bill have been introduced regularly since 2003; all have failed. But this time may be different: anti-China sentiment in both parties has grown. Republican leaders have so far resisted holding a vote on a similar bill in the House of Representatives and look unlikely to change their minds; but if they do, the bill would almost certainly pass.
America has legitimate beefs with China, but this bill is the wrong way to address them. Read the rest of this entry »
Jun 9th 2011, 19:53 by G.I. | WASHINGTON
BEN BERNANKE’S speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward.
He does so in logical, crisp and accessible language. Mr Dudley is, however, still a central banker, which means he must be translated, especially when it comes to the delicate subject of the dollar. In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don’t expect the Fed to change course. Read the rest of this entry »
[Greg Ip] THE dollar’s ascendance to the rank of world’s most important currency is often remembered as having been slow and gradual, mirroring the decline of sterling and Britain’s historic economic dominance. In fact, it was surprisingly swift. From a standing start in 1914, the dollar had overtaken sterling in international importance by 1925. The first world war played a part, but so did a lesser-known factor. America had surpassed Britain as the world’s largest economic power as early as 1870, but it had a stunted financial system: its banks could not open branches abroad, it had no central bank and panics were common. All these things discouraged international use of the dollar. Read the rest of this entry »
The Obama administration’s patience with China wears thin
Sep 23rd 2010 | WASHINGTON, DC
[Greg Ip] CHINESE officials like to lecture their American counterparts that, when it comes to loosening their tightly controlled currency, pressure is counterproductive. Tim Geithner, the treasury secretary, has resisted direct confrontation with China over the yuan’s value. Like his predecessors, he worries that overt pressure would undermine advocates of reform inside China, principally the People’s Bank of China, and erode co-operation on other issues such as Iran and North Korea. Read the article on economist.com
Mar 31st 2010 | WASHINGTON, DC | From The Economist print edition
[Greg Ip] TO MOST people, to say that China holds down the value of its currency to boost its exports is to state the obvious. Not, though, to America’s Treasury Department. By law it must report twice a year on which countries fiddle their exchange rates at the world’s expense. China was last fingered in 1994. Ever since then, the Treasury has concluded that the designation would do more harm than good. Speculation is growing that it may decide differently in its next report, due on April 15th. Read the rest of this entry »
America proposes boosting the IMF’s ability to lend to countries in distress
The original story is linked here.
SINCE the financial crisis went truly global in the second half of 2008, the resources of the International Monetary Fund, the principal firebreak against global contagion, have looked increasingly inadequate. The fund has about $250 billion of usable capacity at its disposal to lend to countries in distress, but a lot of that has now been spoken for. The IMF has called for its ability to lend to be doubled.
The big countries that are the IMF’s main shareholders agree in principle, but there has been no consensus yet on just how to go about boosting the fund’s resources. On Wednesday March 11th Tim Geithner, America’s treasury secretary, proposed boosting the IMF’s credit line with rich countries to an impressive $500 billion from its present $50 billion. Read the rest of this entry »