💾 Archived View for gmi.noulin.net › mobileNews › 4580.gmi captured on 2023-12-28 at 19:12:41. Gemini links have been rewritten to link to archived content
⬅️ Previous capture (2023-01-29)
-=-=-=-=-=-=-
2013-02-19 06:08:11
The world should welcome the monetary assertiveness of Japan and America
Feb 16th 2013 |From the print edition
OFFICIALS from the world s biggest economies meet on February 15th-16th in
Moscow on a mission to avert war. Not one with bombs and bullets, but a
currency war . Finance ministers and central bankers worry that their peers in
the G20 will devalue their currencies to boost exports and grow their economies
at their neighbours expense.
Emerging economies, led by Brazil, first accused America of instigating a
currency war in 2010 when the Federal Reserve bought heaps of bonds with newly
created money. That quantitative easing (QE) made investors flood into
emerging markets in search of better returns, lifting their exchange rates. Now
those charges are being levelled at Japan. Shinzo Abe, the new prime minister,
has promised bold stimulus to restart growth and vanquish deflation. He has
also called for a weaker yen to bolster exports; it has duly fallen by 16%
against the dollar and 19% against the euro since the end of September (when it
was clear that Mr Abe was heading for power).
The complaints, however, are overdone. Rather than condemning the actions of
America and Japan, the rest of the world should praise them and the euro zone
would do well to follow their example.
Turning swords into printing presses
The war rhetoric implies that America and Japan are directly suppressing their
currencies to boost exports and suppress imports. That would be a zero-sum game
which could degenerate into protectionism and a collapse in trade. But this is
not what they are doing. When central banks have lowered their short-term
interest rate to near zero and thus exhausted their conventional monetary
methods, they turn to unconventional means such as QE or convincing people that
inflation will rise. Both actions should lower real (inflation-adjusted)
interest rates. This may now be happening in Japan.
The principal goal of this policy is to stimulate domestic spending and
investment. As a by-product, lower real rates usually weaken the currency as
well, and that in turn tends to depress imports. But if the policy is
successful in reviving domestic demand, it will eventually lead to higher
imports.
Aggressive monetary expansion in a big economy suffering from weak demand and
subdued inflation is good for the rest of the world, not bad. The International
Monetary Fund concluded that America s first rounds of monetary laxity boosted
its trading partners output by as much as 0.3%. The dollar did weaken, but
that became a motivation for Japan s stepped-up assault on deflation. The
combined monetary boost on opposite sides of the Pacific has been a powerful
elixir for global investor confidence.
European officials, fearful that their countries exports are caught in the
crossfire, have entertained loopy ideas such as directly managing the value of
the euro. Instead, the euro zone should stop grumbling and start emulating
Japan: the European Central Bank should ease monetary policy, if necessary
through QE. This would both blunt the euro s rise and combat recession in the
zone s periphery.
That option may not be available to emerging markets, such as Brazil, where
inflation remains a problem. In their case, limited capital controls may be a
sensible short-term defence against destabilising inflows of hot money.
Should Japan s attack on the yen move beyond rhetoric to actual intervention in
the markets to drive its value down, then the rest of the world would be right
to condemn it. Until that happens, other countries should avoid groundless
fearmongering about currency wars. Finance ministers and central banks should
be fighting stagnation, not each other.