Every once in a while, since the economic crisis started, the phrase “currency wars” pops up.
It just means central banks trying to weaken their currencies (to make their countries more competitive) and other countries complaining about said weakening. It’s not really that weird or that war-like.
Lately Japan has been the big easer, and interestingly some of the loudest complaints have come from the Germans, in part because Germans love hard money, but probably more likely because Germany is a big export powerhouse that could lose out if the Euro gets too strong against the yen.
And in fact, EURJPY has been going bananas, as the Euro is on a huge tear, and the yen is on just the opposite.
Here’s a chart of the euro against the yen. It’s been a rocket ride.
So yes, that chart is not helpful to German exporters, but that’s only half the story.
In his weekend note, Jim O’Neill of Goldman Sachs Asset Management partially blames the currency war on the “Facebook Times” because there’s ever more interest in politicians saying soundbite things about economics that can go viral, and get posted by anyone with an internet connection.
The Return of the Phrase “Currency Wars”. Yet Another Sign of the “Facebook Times”.
With the sharp fall of the Yen starting to get more and more attention and comment, one aspect that is back to the forefront is the notion of so-called “currency wars” and the accusation that this time it is Japan that is supposedly engaging in them, with publicly the German policymakers, so far, being the most vocal on the topic. Some considerable time ago, I devoted a Viewpoint to the same topic when the Brazilian finance minister accused both Washington and Beijing at various times of similar supposed currency manipulation efforts, and just like them, I am going to be dismissive of such accusations.
At times, many countries and their governments do deliberately engage in efforts to change the price of their currency. It is quite amusing to read any continental European policymaker making such accusations when – for much of floating rate history – their own currencies have been managed very closely in semi-formal exchange rate systems, and, of course, today a large number of them kept in a formal monetary union, which, as we all know, has required intense focus and energy to keep alive. For most of the prevailing life between the end of floating in 1971 and the start of the European Monetary Union (EMU) in 1999, the Deutschmark versus the French Franc was held in very narrow ranges, except for the occasional FFR 2 devaluation and other occasional bouts of turbulence. Was that not currency manipulation?
I don’t recall either Chancellor Merkel or the Bundesbank recently accusing the Swiss authorities of deliberately manipulating the Swiss Franc?
Of course, much of what is often said, especially by a politician, is to use populist notions to either distract or sometimes attract attention to something that suits their purpose. And of course, it is especially easy and persistently tempting in this world of instant access to the internet and blogs where anyone can offer a view about almost anything.
Basically, ‘currency wars’ is a silly phrase with huge viral potential.
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