The global economy
How to stop a currency war
Keep calm, don’t expect quick fixes and above all don’t unleash a trade fight with China
Oct 14th 2010
IN RECENT weeks the world economy has been on a war footing, at least rhetorically. Ever since Brazil’s finance minister, Guido Mantega, declared on September 27th that an “international currency war” had broken out, the global economic debate has been recast in battlefield terms, not just by excitable headline-writers, but by officials themselves. Gone is the fuzzy rhetoric about co-operation to boost global growth. A more combative tone has taken hold (see article). Countries blame each other for distorting global demand, with weapons that range from quantitative easing (printing money to buy bonds) to currency intervention and capital controls.
(原文連結)
Currency War
n Counties blame each other for distorting global demand, with weapons including quantitative easing (printing money to buy bonds), currency intervention, and capital control.
n Three battles
ü
ü Rich world’s monetary policy : quantitative easing
ü Developing countries’ response to the capital flows
n Still modest now, but it may turn into real trade war
ü Sluggish economy growth in the rich world is likely to last for years.
ü As fiscal austerity kicks in, the appeal of using a cheaper currency as a source of demand will increase.
n Developing countries’ counter measure to capital flood
n If the flood of foreign capital intensifies, developing countries may be forced to choose between:
ü Losing competitiveness → hurt export
ü Draconian capital controls → decrease FDI & economy recovery
ü Allowing their economies to overheat → inflation
n The rich world’s mix of fiscal austerity and loose monetary policy—will have an uncomfortable impact on small, open emerging economies, in the form of unwelcome capital inflows. → Taiwan
Question:
Do you agree or disagree that the government should intervene in the market in order to maintain their export competitive?
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