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G20 finance ministers are struggling to build consensus on how to avert a "currency war" (FT) at meetings beginning today in Gyeongju, South Korea. The concern is that major economies will engage in competitive devaluations of their currencies to boost export competitiveness and their economic recoveries. China, which has been criticized for alleged manipulation of its currency, warned that any attack against it at the G20 meeting will divide the group and weaken its influence. Already, some leaders have bristled at a U.S. proposal for countries to commit to targeted reductions in their current account surpluses and deficits (Reuters). Japan and Germany, which have built up trade surpluses under export-led growth strategies, argue those outcomes are mostly determined by private companies and individuals (WSJ), not government policy (WSJ). According to an internal Bank of France document on the proposal, China and the United States support the policy because it addresses global rebalancing but avoids specific exchange-rate policy commitments, while Germany, Japan, Canada, and the European Commission strongly oppose it.
Analysis:
In the Financial Times, John Authers says there is a twofold risk if a "currency war" begins. First, that a "loser" in the currency war would resort to a trade war, and second, that currency traders get caught like they did in 2008 and "lose a bundle," which could cascade elsewhere in the financial system.
In the Australian, Stefan Auer says when the financial crisis hit, Europe was eager to differentiate itself from U.S. economic policies. But Europe's fiscal situation is now just as dire as that in the United States, and its demographic challenges are worse
Background:
This CFR Crisis Guide examines the origins of the global financial crisis.
http://www.cfr.org/about/newsletters/editorial_detail.html?id=2238Analysis:
In the Financial Times, John Authers says there is a twofold risk if a "currency war" begins. First, that a "loser" in the currency war would resort to a trade war, and second, that currency traders get caught like they did in 2008 and "lose a bundle," which could cascade elsewhere in the financial system.
In the Australian, Stefan Auer says when the financial crisis hit, Europe was eager to differentiate itself from U.S. economic policies. But Europe's fiscal situation is now just as dire as that in the United States, and its demographic challenges are worse
Background:
This CFR Crisis Guide examines the origins of the global financial crisis.
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