Session 2. Tensions and New Alliances: the Currency Wars
Mr. Mario Draghi
Les Rencontres Économiques d’Aix-en-Provence
8-9-10 July 2011
"The concept of “currency war”, coined by Brazil’s Finance Minister Guido Mantega in September 2010..."
"If we look back at the developments in the international monetary system over the past 30 years, we see that among advanced economies the era of competitive devaluations has come to an end. By the end of the 1990s, a large body of research had emerged pointing out the conflict between intervention in foreign exchange markets and the commitment of monetary policy to price stability. In the United States, the doubts about the effectiveness of sterilized interventions prompted their abandonment some time after the Mexican crisis. In Europe, the adoption of a single currency put an end to the realignments that had characterized first the “Snake” and then the first two stages of the European Monetary Union."
"...Currency interventions in these economies are now made only in case of excessively rapid and large fluctuations. In the years from 1981 to 1997 the Federal Reserve intervened 453 times, more than 30 interventions per year on average. In the last 12 years, in contrast, it has intervened only twice, on September 2000, when the euro had reached a record low against the dollar, and on 18 March this year, in the aftermath of the earthquake that hit Japan...."
The European Central Bank has intervened only four additional times, in September and November 2000. Japan has been somewhat more reluctant to abandon currency interventions, because of the continuing upward pressures on the yen in the face of a troubled slow-growing economy. Yet, after 2004, it has intervened only twice, on September 2010 and this year in the days following the earthquake.