EDITORIAL: 'Currency wars' undermine the global economy

Bangkok (The Nation/ANN) - The International Monetary Fund (IMF) is now flip-flopping in regard to "currency wars". On October 7, 2010, Dominique Strauss-Kahn, the then managing director of the IMF, told the BBC that global currency wars "pose a real threat" to economic recovery.

Strauss-Kahn was speaking two years after the collapse of the US financial system, which also passed on the contagion effect to Europe.

Instead of restructuring their financial system and economies, the advanced economies pumped taxpayers' money in to prop up the big banks and corporates, and printed money to keep their systems from falling apart.

At the G-20 meeting scheduled for today and tomorrow in Moscow, the International Monetary Fund has changed its track. The IMF's spokesman Gerry Rice said talk of currency wars was "overblown". He played down concerns on Thursday that the currency war launched by the advanced economies, namely the United States and Japan, could lead to competitive devaluations. The IMF, Rice insisted, has seen now abnormal movements in international exchange rates. Earlier, the IMF's chief economist saw no problems of countries' adopting drastic measures to try to put their economies back on track.

With this passing of judgment, it is clear that the IMF, which looks after global macroeconomic and foreign exchange stability, is siding with the advanced economies. The US Federal Reserve and the Bank of Japan are now undertaking aggressive monetary policy - zero interest rate and money printing - to combat deflation. Earlier the Bank of England also undertook money printing to the tune of 375,000 billion pounds sterling. And the European Central Bank violated its mandate by briefly engaging in money printing to save the eurozone before the Germany talked it out of this.

Surprisingly, Japan is now being singled out as the main culprit although policy makers from other advanced economies also share the collective sin of money printing, which creates hot money and destabilises the international monetary system.

Japan has been less diplomatic in its declaration of a currency war.

Shinzo Abe, the prime minister, has taken a hands-on approach to repair the Japanese ailing economy. The Japanese currency war is clear in its target and can be summarised as follows: First, the Bank of Japan, which keeps its policy rate at 0.10 per cent, will monetise the government debt. Second, the yen exchange rate is targeted to 95-100 to the US dollar in the medium term outlook. The stock market is targeted to climb to 13,000 by the end of March.

The US Federal Reserve is also engaging in a currency war by printing $85,000 billion a month to buy out mortgage-backed securities from the banks and also monetise the government debt. The Fed, which keeps its rate at 0.25 per cent, will continue this monetary easing policy until unemployment falls below 6.5 per cent. Now unemployment is near 8 per cent.

These currency moves have shocked BRICS countries as well as other emerging-market economies, including Thailand. The G-20 is clearly divided between the advanced economies - the UK, the US, Japan, France, Canada, Italy, Germany - and emerging countries such as Russia, China, South Korea, India, Brazil, Argentina, Indonesia and the like.

Top leaders of Russia, South Korea, Germany, Brazil, and China have all expressed their concern over the currency moves, which drive up the value of their currencies and undermine the competitiveness of their exports. If they decide to enter the game - like Veneuzuela, which has devalued its currency by 32 per cent - the world would be plunged into competitive devaluations. At the end of the day, competitive devaluations would lead to run-away inflation or hyperinflation. Nobody will win with these currency wars.

COPYRIGHT: ASIA NEWS NETWORK

  • Thursday #sgroundup: Body found of boy who made first call from Korea ferry: report 19 minutes ago
    Thursday #sgroundup: Body found of boy who made first call from Korea ferry: report

    Here are today’s top trending stories in case you missed them.

  • Look, don't touch: Flickr photo of the day 11 hours ago
    Look, don't touch: Flickr photo of the day

    If there's one car that's particularly sought-after among today's well-heeled car collectors, a Ferrari 250 would be it. Usually it's the GTO variant, like the 1963 that sold for a record $52 million last year. A 250 of any sorts demands unfathomable cash, however, which is why we can but gawk at this 250 Testa Rossa. It's as close as any mere mortal will ever come to owning one.

  • Peeling out at Octane Academy, the free driving school for Ford ST owners 12 hours ago
    Peeling out at Octane Academy, the free driving school for Ford ST owners

    Buyers of Ferraris or Jaguars are used to perks from manufacturers – including racetrack lessons to help master their exotic machines. But for enthusiasts on a tighter budget, the Ford ST Octane Academy might be the sweetest deal in motoring: Buy a Ford Fiesta ST or Focus ST hatchback, and the reward is a free day of training at one of America’s longest, most-lavish road courses.

  • David Moyes statement after Man United firing
    David Moyes statement after Man United firing

    Statement released by David Moyes on Wednesday, a day after Manchester United announced he left as manager after less than a season in charge.

  • Pirates kidnap three on Singapore tanker off Malaysia
    Pirates kidnap three on Singapore tanker off Malaysia

    Armed pirates boarded a Singapore-managed oil tanker in the Strait of Malacca, kidnapping three Indonesian crew and stealing some of the vessel's shipment of diesel fuel, the International Maritime Bureau said Wednesday. The attack occurred early Tuesday off Malaysia's west coast, said Noel Choong, head of IMB's Kuala Lumpur-based piracy reporting centre. The diesel oil tanker was believed to be en route to Myanmar. "IMB is aware of the attack on the Singapore-managed ship in the Malacca Straits.

  • Indonesian general says his flashy watch is a fake
    Indonesian general says his flashy watch is a fake

    JAKARTA, Indonesia (AP) — Indonesia's military commander said critics who called him out for wearing an especially luxurious watch should be quiet because the timepiece is actually a cheap Chinese fake.