An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.
A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.
The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.
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3 comments:
What a surprise. Major world currencies – US$, Euro & Yen are losing value as their central banks print money to keep the world solvent. This may end badly – for the emerging countries, that is, as their currencies rise, along with their cost of labor, and they strain to stay competitive.
The problem is indeed China, but not for the US. No, it's China vs Brazil, Korea, Singapore, Mexico et.al. And it’s gonna get ugly.
Currencies, wages, labor and other regulation . . . the race to the bottom is driven not just by corporate competition, but by countries eager to grab a slice of the world's industrial base as well. I shared, via twitter, a post by Dan Drezner in FP's Passport blog: http://bit.ly/auc13L on this topic. Japan has not only initiated this round of currency intervention, but granted special tax breaks to foreign capital investing in Japanese commercial bonds a month or two ago.
When will governments get it that this can't go on forever? Why is the US maintaining a cyclopean foreign policy focus on the war on terror while these issues remain addressed only as if an afterthought?
Congrats Hale! I see that you are on NYT/538 w/ Nate. I miss your posts on DKos, and forget to check here.
Great posts here as well.
Ya, I've been screaming about Japan/China's currency manipulations since summer of 2008. It's ridiculous.
Cheers.
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