BRUSSELS – Guido Mantega, Brazil’s finance minister, aptly captured the current monetary Zeitgeist when he spoke of a looming “currency war.” What had seemed a bilateral dispute between the United States and China over the renminbi’s exchange rate has mutated into a general controversy over capital flows and currencies.
Today, every country seems to want to depreciate its currency. Japan has resumed foreign-exchange intervention, and the US Federal Reserve and the Bank of England are preparing another large-scale purchase of government bonds – a measure called “quantitative easing,” which lowers long-term interest rates and indirectly weakens the currency.
China is fiercely resisting US and European pressure to accelerate the snail-paced appreciation of the renminbi against the dollar. Emerging-market countries are turning to an array of techniques to discourage capital inflows or sterilize their effect on the exchange rate.
We hope you're enjoying Project Syndicate.
To continue reading, subscribe now.
Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.
Already have an account or want to create one to read two commentaries for free? Log in