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The following article was published in our article directory on October 9, 2010.
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Who Will the World Push Currency Brink of War

Article Category: World Affairs

Author Name: xia zihui

International Monetary Fund (IMF) and World Bank headquarters in Washington, the annual fall meeting. At the same time, the "currency war the world faces," "lead the world's currency undervalued currency war" arguments such as rolling, the exchange rate will be distracting to be on the agenda.

"Currency war" smoke

The most recent of the world into a "currency war" speech, the first from the Brazilian Finance Minister's speech. September 27, the Brazilian Finance Minister Mantega in a speech said: "We are in an international currency war, devaluation of national currencies in general, which form a threat to us, because it reduces the competitiveness of our . "He said that the Brazilian government" will take decisive action "to prevent excessive appreciation of the Brazilian currency, the real.

In fact, only the countries concerned Mantega frankly out. Today, the United States, Japan and other developed countries to continue to stimulate the economy and adopt a more accommodative monetary policy, leading to currency depreciation. And because low returns on investment in these countries, a lot of hot money flock to developing countries, has increased the pressure on these countries currencies, these countries are also faced with the choice to take measures to intervene in currency markets. For a time, the world suddenly faced with the "currency war" threat.

Responsible for monitoring the world economic and financial order of the International Monetary Fund, in its fall the eve of the annual meeting expressed concern. IMF Chairman Kahn warned that if governments want to use the exchange rate to solve domestic problems, then there is the risk of a currency war.

He told a press conference, said: "Obviously, this idea has spread, the exchange rate may be as a political weapon. This thought into action after the conversion, there may be a major risk to global recovery." He believes that that such measures will have a "very destructive long-term impact."

Who poisoned the world financial order

"Currency war" is not just a legend, in recent months, some countries action has been pushing the world towards a "currency war" edges.

Many experts believe that the currency crisis, "the source", was developed so-called "quantitative easing monetary policy." The policy is the core of the central bank through the purchase of banks and other financial institutions to hold the bonds, notes, etc., the money available to these institutions, that is, large-scale capital injection to the market. This is different from the traditional monetary policy, "unconventional policy tool" to stimulate economic growth.

As in the past year the U.S. economic downturn, high unemployment, the further expansion of "quantitative easing monetary policy," the expectations are growing. Federal Reserve Chairman Ben Bernanke said recently that the Federal Reserve asset purchase plan "to help reduce the cost of borrowing", but also boost the economy and expand the scale of asset purchases may further ease the financial situation. His words once again the scale of the Fed's intention to expand the asset purchase.

Widely expected, the Fed introduced the fastest in November a new round of asset purchase plan to boost the weak economic recovery, the scale is likely to reach 1 trillion U.S. dollars. Regardless of whether the United States that play an effective role in economic recovery, U.S. large-scale "quantitative easing monetary policy," no doubt the dollar will continue to reduce, to the significant impact the global financial markets.

Other developed countries follow suit, and are taking "quantitative easing monetary policy." After the Japanese September 15 more than in the past 6 years after the first intervention in the foreign exchange market, October 5, Bank of Japan suddenly regain the "zero interest rate", also announced to buy bonds with a 5 trillion yen to buy assets in order to curb the Day dollar. Subsequently, South Korea, Thailand and Singapore have also intervene in the market.

Including the U.S. dollar against euro, pound the world, including currency exchange rate remained low, affecting the same troubled by weak economic growth in the UK and the euro zone. It is reported that Britain is likely to follow the Japanese and U.S. practices.

The impact of emerging economies face

As the major Western central banks interest rates near zero, the inevitable cross-border profit-driven capital flows to relatively high return on investment in emerging economies. According to incomplete statistics, this year will be the world's capital flows to emerging countries is much higher than last year's level, while capital inflows into Asia more than 60%. Net capital inflows in Asia in 2009 35 billion U.S. dollars, this year is expected to be higher.

Influx of capital, on the one hand emerging stock market, property market, rising commodity prices, blowing a large number of asset bubbles in emerging economies face imported inflation pressure; the other hand, the inflow of foreign capital will be currency in the short term to face greater pressure to appreciate, the threat of these countries exports.

Currently, Latin American countries such as Brazil has responded not only increase the purchases of dollars, its foreign exchange reserves have reached 270 billion U.S. dollars, foreign fixed-income investments will also increase to 4% tax in an effort to slow down this capital flows. Asian emerging countries are also facing pressure from the influx of international hot money, so had to make some response.

In this context, the RMB has remained relatively stable, is a kind of self-protection behavior, but also to avoid the world "currency war" a contribution to a vicious cycle.

Biennial will not leave the United States close the mouths of RMB

The expansion of "quantitative easing" on the eve of the United States the pressure for appreciation of the renminbi continues to strengthen. Following the U.S. House of Representatives passed a "currency reform bill to promote fair trade", the U.S. Treasury secretary to promise to exchange rate has become the world's economy, "central challenge", he accused the value of the undervalued yuan, "dangerous and dynamic world" and said will be discussed at the IMF annual meeting of the RMB is undervalued issues.

In accordance with the schedule, the United States in the "Biennial" will gather four big issue: I hope that countries can maintain economic stimulus package, to avoid the fast implementation of the "exit policy"; rebalancing the global economy; reform of international financial institutions; to promote global economic development .

But now "the RMB exchange rate issue" has become the core of U.S. concern, in discussing the process of world economic and financial issues, the United States is almost close the mouths separated from RMB.

Rebalancing in the global economy, the United States accused China of keeping the yuan low exchange rate, dependent on exports to the U.S. in the "unfair" trade, the accumulation of large amounts of capital, the economy is not conducive to re-balance the whole. Reform the international financial institutions to expand the share of emerging countries in question in the IMF, Geithner said, should be allowed to exchange rate flexibility in emerging countries to the International Monetary Fund in exchange for the right to speak. He hinted that if the United States support for China in the IMF play a more important role among them, to see China's market-oriented exchange rate policy is to show "more progress."

Exchange rate has become a politically sensitive topic

7, published in the "Washington Post" There is an article he said: Today the exchange rate has become the country a "very sensitive political issue." RMB appreciation on China's export enterprises and the employment situation will have an impact. As Premier Wen Jiabao said in Brussels: if the RMB exchange rate stable, it will bring disaster to the Chinese and the world. If the request by some 20% appreciation of the RMB exchange rate to 40%, China's export enterprises will be going bankrupt, society is difficult to stabilize.

Exchange rate for the United States is also a "political issue." The eve of midterm elections in the United States, the United States within the low economic growth, high unemployment somebody to scapegoat. The contradiction between the RMB has become the best choice for introduced.

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