Tuesday, July 12, 2011

The G-20 and the currency war

The G-20 and the currency war
Jean Pisani-Ferry, 25 October 2010
(This article was a recent contribution to The Brookings Institution)

"...every country seems to be aiming at a depreciation of its currency or at least at avoiding an appreciation: Japan with unilateral foreign exchange intervention; the U.S. and the U.K. through large-scale purchase of government bonds; China through keeping an almost fixed link vis-à-vis a depreciating U.S. dollar; and emerging countries all over the world through an array of techniques to discourage capital inflows or to ward off their effects on the exchange rate. Only the euro area seems to be bucking this trend, as the European Central Bank has taken the first steps toward an exit from exceptional crisis measures and has allowed a rise in the short-term interest rate. But even it cannot be indifferent to the risks of appreciation; a persistently strong euro would seriously complicate the economic adjustment under way in countries under stress like Spain, Portugal and Ireland..."

[Mrt: Under freegold the aim should be to have a well managed stable currency. No need for currency wars of this type.]

"...This looks familiar. Indeed, it took two years after the crash of the 1930s, from October 1929 to September 1931, for Britain to sever the pound’s link to gold and set in motion a currency war..."

[Mrt: so we are some time from LB collapse, how long will the two-tier market hold? The asymmetry between the physical only and paper gold can not and will never hold for too long.]

Source: The G-20 and the currency war

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