Forex trading course: Currency wars country-by-country guide
In February G7 members agreed to refrain from competitive currency devaluations designed to lessen the cost of their exports relative to other countries. As we can see, there is a tacit conspiracy to do just the opposite.
"We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates."
Why this is a lot of nonsense:
The Bank of Japan through its new governor, Haruhiko Kuroda, has been the leading force in the currency wars. This April the bank went nuclear on the yen – unveiling a radical stimulus package aimed at awakening Japan from its deflationary slumber.
It will see roughly 270 trillion yen ($2.9 trillion) pumped into the economy between now and the end of 2014.
Japan has so far been the most 'successful' in slaying its currency. The yen has lost a whopping 15 per cent against the US dollar in 2013. The country has also secured support from the G20 to pursue its ultra-loose monetary strategy.
What they say - George Soros:
"What Japan is doing is actually quite dangerous because they are doing it after 25 years of just simply accumulating deficits and not getting the economy going, they may not be able to stop it."
If the yen starts to fall, Japanese may want to put their cash abroad, in which case "the fall may become like an avalanche".
The US has been another leading light. Now in the third (open-ended) phase of QE, the printing presses in Washington are running at full tilt.
The Fed’s balance sheet has reached $3 trillion and could exceed $4 trillion if QE3 continues for the rest of the year. The chances are it will, especially with less than promising labour market figures of late.
Despite the Fed's best efforts, it just can't kill the greenback. "The dollar still looks better than most other currencies regardless of the fact that QE is an abomination and is not the right prescription for the economy,” Saxo's head of FX strategy John J Hardy argues.
What they say: Ben Bernanke, the US Federal Reserve chairman:
"Because stronger growth in each economy confers beneficial spill-overs to trading partners, these policies are not beggar-thy-neighbor but rather are positive-sum, "enrich-thy-neighbor actions.
"In sum, the advanced industrial economies are currently pursuing appropriately expansionary policies to help support recovery and price stability in their own countries."
Britain has not been shying away. QE has reached £375 billion and interest rates have been slashed to historic lows. With Mark Carney arriving in the summer with a new looser remit from the chancellor, expect the Old Lady to step up efforts to smash the pound.
What they say – Bank of England governor Sir Mervyn King:
Sterling's 25 per cent fall since 2007 before its rise last year "was certainly necessary for a full rebalancing of our economy ".
The European Central Bank is the last bastion of conventional monetary policy. Although it has been 'easing' its efforts barely warrant the term QE. The ECB has lowered interest rates and chief Mario Draghi has suggested negative deposit rates could be used to stimulate growth.
What they say – Benoît Cœuré, a member of the executive board of the ECB:
"Under these circumstances, the temptation to divert global demand and foreign capital towards the domestic economy at the expense of other ailing countries could be dangerously alluring."
China's yuan remains too weak, according to the US Treasury, which has slammed the country for maintaining an artificially weak currency to boost exports. Despite this warning, Beijing is ready to do what it needs to keep its exports competitive, and is keeping a keen eye on Japan and the US.
What they say - China's central bank deputy governor Yi Gang:
“China is prepared. In terms of both monetary policies and other mechanisms, China will take into full account the quantitative easing policies implemented by central banks of foreign countries.”
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