Japan’s latest intervention in the currency market is exposing one key problem with the export-led growth model — it works until everyone wants to do it, then fails.
Previously the U.S. was happy to consume global exports, but now even it is concerned about the dollar’s export competitiveness relative to other currencies, especially the yuan.
Japan’s worried about its currency, China wants a competitive currency, South East Asia thinks its currencies are too strong, and even Europe has bemoaned a strong euro.
“There’s a basic dilemma for the world as everyone wants to export their way out of trouble and can’t,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London and incoming chairman of Goldman Sachs Asset Management, in a telephone interview. “It’s a very sensitive topic for the developed countries and markets.”
So it’s a race to the bottom for the major currencies of the world, like never before given that the U.S. consumer isn’t what it used to be. Either that or many of the old export-led economies, will need to embrace their strengthening currencies and become net-importers.
Business Insider Emails & Alerts
Site highlights each day to your inbox.