G20 vows to avoid currency war

18 Feb

4exanalysisA single country can win for a while the devaluing commercial advantages. This operation makes imports more expensive and favors the local domestic products. On the other hand, exporters get higher profits when they change back to local currency the international revenue. But this brings prosperity measure only temporary, illusory, when trading partners respond with custom barriers or similar policies to depreciate the currency. A currency war is widely understood by economists as a serious risk to the global economy if it gets to impose relations between the major powers. G20 communiqué from Russia promises that this will not happen. According to the IMF, it’s “currency worries” not “war” there are just concerns and not a high conflict. But the view that G7 set out and a few days earlier, is that monetary policy is  followed with the purpose to stimulate the economy, which has the side effect of weakening, should not be punished.  As long as this does not happen, it’s okay,  officials say. But in fact, the effects and interrelationships are complex. They just seem that they have not yet reached the warning level.

Hot topic of the moment is the Japanese yen depreciation as a result of central bank’s aggressive pro-inflation reorientation. In this policy, yen’s decrease plays an important role. Such return is questionable in Europe, and below potential in the U.S., the markets are nervous. Investors expect more severe criticism of Japanese shares. As this didn’t happened, and the story told by the U.S. economy (growing confidence, recovery in the housing market, expectations of further revision of GDP) is completely different from the Japanese yen and continued it’s weak defensive position against the dollar. Quotes closer to 100 for USDJPY would increase speculators nervousness, on the short run, increasing criticism in G7

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