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Monday, January 14, 2013

World on the verge of a new currency war

World currency war



The Government of Japan has announced a new round of printing money. This could lead to a global competition in currency devaluation. And in the end of it, likely to suffer all the economic power



It looks like a respectable Japanese lord, he is modest and does not attract attention. However, the appointment of Shinzo Abe as prime minister of Japan in late 2012 prompted the alert the whole world in the first place - the financial markets.

All of his election campaign was full of accusations against China - the big neighbor and rival. Abe's victory in the elections means taking a tougher version of behavior not only in the geopolitical area, but above all - in the financial sector.

Japan's efforts to weaken the yen - so this program sounds conservative politics. Thus had read a new round of currency war in the world.


The lowest rate of 2.5 years against the dollar

In early 2013, the Finance Minister Taro Aso is sent on a visit to Asia. Around the same time, the yen against the dollar falls to lowest level in two and a half years - 88.41. Only one new rhetoric in Tokyo was enough for a few weeks to lower the rate of the national currency by more than 10%.

Speaking about the fall of the Japanese currency, Aso says: proof of a strong, from his point of view, the appreciation of the yen, "is a top priority in order to ensure the re-growth of the Japanese economy."

Agree with this, and the Bank of Japan, and it demonstrates its willingness to achieve the desired level of inflation for the government at 2%.

Nervous conditions in the foreign exchange markets

This means that the Bank of Japan is likely to not give up and will continue to print money weakening the yen, while the growth rate of prices, comprising the present is less than 0%, no increase to 2%.

This, together with rising public expenditure needs so much to lower the yen to Japanese enterprises were again able to win back their share of the world market.

The mood in the currency markets nervous. Japan - not only the State conducting the devaluation of the national currency, or plan to do so. The United States, Britain and the euro zone also intervene in the currency war.


Engaging all major economies

Should be added to the People's Republic of China - the second largest economy in the world - that's more than ten years of keeping the renminbi (yuan) at an artificially low level. Although recent depreciation of the Chinese money has slowed, however monetary system as a whole continues to be under tension.

Almost all the major economic powers were involved in the currency war, which inevitably draws into this maelstrom, and other trading nations, especially the emerging economies, and open capital markets.

Brazilian Finance Minister Guido Mantega in September 2010 to alert all of the consequences of this kind of struggle of all against all. The situation is this: if one currency becomes cheaper, the other must inevitably become more expensive.


Export-led growth

So it was, for example, in the case of the Brazilian real, as Brazil, with its growing economy and a high level of interest was an attractive market. As a result, in 2010, when Mantega made ​​his warning, the real added a third in value against the dollar.

Export-oriented economy was hit hard by this, and economic growth slowed. In the end, Brazil responded, overlaid their securities special tax. Other states have resorted to currency control, restrict the free flow of capital, which is an obstacle to an open world economy.

Currency war is a response to the financial crisis. The most affected countries to respond to the decline, trying to achieve export-led growth. This strategy, and used to be his followers.


Cheapening currency is not new

In the twenties, especially France has built a competitive advantage at the expense of the franc. After the Great Depression began in 1929, and the subsequent destruction in 1931, the gold standard UK has moved to a policy of cheaper rates. The United States, Japan and other countries followed suit.

All this has led to competition in the field of currency devaluation beggar-thy-neighbour policy, to which other countries once again reacted with protective duties and control over capital flows. 70 and 80 years have also seen the currency war that ended because the United States has forced Germany and Japan in the first place much appreciate their currencies.


Central banks use the trillions

At present, in contrast to the 20's, the currency war is not yet led to protectionism, which is largely due to the cooperation between the governments of the G-20 - the most important group of developed countries, and countries with developing economies.

The main actors of this conflict - it is not the government and central banks. Since the beginning of the crisis in 2008, central banks have used 6 trillion.

Indicator is the central bank balance sheets, which are in practice arsenals currency war. Only the Fed has increased its balance sheet from 869 billion in mid-2007, nearly 3,000 billion dollars at present.


Savings deposits devaluation threatens

Suffering party during the currency wars are the owners of savings accounts. The fact that their savings threatened depreciation.

The head of the world's largest management company Pimco Bill Gross compares the increase in the mass of money increased efficiency (Basisgeldmenge) with the issuance of "unsecured check." Reliable, this increase would have been the case if the economy has grown accordingly. But this is not out of the question.

"Future price to have to pay fee for unsecured check, will be offset by inflation and currency devaluation or in relation to other currencies, or in relation to such commodities as oil and gold," - emphasizes Gross.

The dollar may lose its stability

The paradox is that the dollar's position as the leading global currency has not yet shaken as a result of currency war. On the contrary the euro crisis in 2011 and 2012 gave a new impetus to the dollar. The dollar still makes third currency reserves.

But the U.S. currency can lose stability if the budget deficit this superpower will continue to spiral out of control, and the Fed will continue to seamlessly print "green". It is quite possible that in this case the big winner in the war of currencies will be China. Beijing is ready to ensure that the Yuan took the place of the U.S. currency.

This article titled "The Future of Europe» (Die Zukunft Europas) appeared in a special edition newspaper Welt and Welt am Sonntag, prepared for the Economic Summit Group Welt in 2013. The forum, held in early January in the room publisher Axel Springer AG in Berlin, attended by over 60 senior managers and politicians discussing the new architecture of the European community.







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