New Global Economic Threat Is Arising In The Form Of Possible Currency Wars

Wednesday, January 16, 2013 08:30
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New Global Economic Threat Is Arising In The Form Of Possible Currency Wars

Tags: currency | Economic Outlook | world economy

The scramble for sources of economic growth is increasing the chances of a currency war.
 
The euro approaching new highs and the strength in the Norwegian Krone are challenging the competitiveness of other countries and encouraging retaliation.

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The alert came from Russia, the country that chairs the Group of 20. The skirmish could lead to conflict among Group of 20 central bankers who just three months ago reaffirmed their commitment to a 2009 agreement not to devalue their currencies competitively.
 
Switzerland has blocked since 2011 the franc’s appreciation against the euro. Japan’s newly elected prime minister has fueled the latest rhetoric with campaigns to stimulate growth through an aggressive central bank.
 
The yen has slid 11% against the dollar since December. This week, it reached its lowest level in two years.
 
Other central bankers are now also speaking out, saying the euro’s 7% appreciation against the dollar over the past six months represents a renewed threat to its economy just as signs emerge that it is coming out of its three-year sovereign debt crisis.
 
If Japan continues to target lower currency valuations, it could spur reciprocal devaluations that would hurt the global economy. Concern is growing regarding the emergence of actively managed exchange rates.

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