October 13, 2010Concerns Over Currency Wars Grow
Concerns over global currency and monetary policies grew as Japan warned South Korea that its market interventions to depress the won (FT) would come under question at next month's G20 meeting.
Japan and South Korea have both intervened in currency markets, which adds to ongoing tensions between the United States and China over the value of the Chinese currency. The United States has urged China to allow the yuan to appreciate, while China has chided the United States for encouraging destabilizing capital flows into emerging markets with its loose monetary policy.
Fears of a currency war have grown as more emerging economies try to curb capital inflows. On Wednesday, Thailand became the latest country to institute measures countering capital inflows by reinstating a tax on foreign purchases of Thai bonds. In response to criticism from Japan, whose exporters compete with Korean companies, South Korea said its intervention was not to prevent appreciation of the won but to stabilize volatility in the market.
China said its exports and foreign exchange reserves continued to surge (NYT) in September, data that will likely keep pressure on Beijing to appreciate its currency. Germany, Europe's largest exporter, added pressure on China to more fairly align its currency with its trading partners', warning of a looming trade war (WSJ) if more countries competing to boost exports hold down their currencies. "China bears a lot of responsibility for ensuring that [a currency war] doesn't come to an escalation," said German Economy Minister Rainer Brüderle, who is in China ahead of next week's G20 meeting.
Brüderle warned that punitive import duties, which U.S. lawmakers are considering, would "only lead to retaliation. We can all only lose through protectionist measures."Analysis:In the Financial Times, Merrill Lynch's Bill O'Neill says fears of a currency war between the United States and China are overdone, since the Chinese economy will likely re-accelerate in the final quarter of 2010, increasing the probability of an appreciating yuan.
In the Wall Street Journal, Irwin Stelzer says the G20 meeting is unlikely to yield any agreement on trade and currency wars, since "the gulf between the contestants is too wide." In the New York Times, Kenneth Rogoff says the United States has lost some of the standing it needs to shape global policy, since post-financial crisis, a number of countries are less willing to assume the United States "knows best on economic policy." Some countries fear that Fed policies are pushing down the dollar's value.
Background: U.S.-China economic imbalances.
