|Is the one at the bottom center on the offensive?|
1. Wasn't "beggar-thy-neighbor" more accurate in describing competitive devaluation (if that's really what's happening)?
2. So the US is now complaining about the effects of its economy being on a money-tightening schedule while others do the opposite. Who's to blame--the initiator or the latecomers?
3. How exactly do we know when a country is engaging in "currency war"?
And so on and so forth. Fortunately, Agence France-Presse has a surprisingly nuanced and wide-ranging discussion of the alleged European offshoot of currency war:
"The currency weapon is rarely the official objective," said Patrick Jacq, a bonds specialist at BNP Paribas bank. Led by Brazil, developing countries charged that the US QE programme was a first shot in a currency war because their economies suffered as exports slumped thanks to the weak dollar. Those complaints were brushed aside with commitments by the leading economies to "market determined exchange rates".
So, in effect, it's what can be done but not said. There is also this idea circulating that central banks are less willing to consider the international effects of their actions and concentrate on their own:But public comments from elected officials about currency values often muddy the waters about policy objectives, even if central banks in most major economies are independent. Lowering a currency's value may not be the stated policy objective "but they are thinking it so loudly all the world hears it," said Rene Desfossez, a bonds specialist at Natixis investment bank.The reason is clear as "the exchange rate is one of the principle levers on which they can use to make monetary policy as favourable as possible for economic recovery". A weak currency can provide a boost to exports, and thus contribute to a wider economic recovery if companies raise wages and create new jobs.
And UniCredit's global chief economist, Erik Nielsen, observed recently that days of "gentlemanly" cooperation between central banks is long gone. "I am not in the 'currency war' camp, but it is important to note that the world's leading central bankers are now making it explicitly clear that they run monetary policy for their own country only," he said in a note to clients. "And while the currency is not an explicit objective in their policy set-up, the FX is seen -- and explicitly referred to -- as an integral part of creating the desired financial conditions for the domestic economies."More countries have been joining on the easing bandwagon, either on their own initiative or in response to others. The Organisation for Economic Cooperation and Development noted recently that monetary policy in countries accounting for roughly half of global output had been eased in the past few months.
Yet, there are those who defend the actions of central banks currently engaged in loose monetary policy. This despite quite frankly dubious currency manipulation criteria identified by the IMF at the United States' behest to bash developing countries. After all, why would Europe--like the United States--need to hoard foreign exchange as large issuers of currencies that global reserves are accumulated in?
The eurozone, Japan and China all have ample justification for monetary stimulus, they noted. One way of uncovering unfair currency manipulation, Bloomberg editors said, is to look at foreign reserves, which should increase if a country is deliberately buying foreign currency to keep the value of its currency low.But no major country has been massively hoarding foreign reserves, according to Bloomberg data. The massive swings in currencies in recent months -- the dollar has appreciated by a quarter against a basket of major currencies since August -- may be due more to monetary and economic dissonance.
I will have more to say about reserve accumulation soon--but not concerning the Eurozone. In the meantime, take attempts to characterize European actions as "currency war" with a grain of salt. Not only is the term increasingly non-informative, but the ECB's actions are more nuanced than simply tarring it with this brush