Recently, the debate on the exchange rate issue around the world has been filled with smoke, and it has fallen into the global exchange rate war. On the one hand, developed countries such as the United States, Europe and Japan have launched a new round of quantitative easing policy to stimulate the weak domestic economy. After the interest rate is no longer available, the central bank directly purchases various financial products and injects liquidity into the market. Sexuality, which will undoubtedly lead to weak currency in developed countries; on the other hand, due to concerns about the decline in exports and the inflow of hot money, many central banks of emerging markets, including the Bank of Japan, have begun to intervene in large amounts in their foreign exchange markets in an effort to curb local currency against developed countries. A significant appreciation of the currency. Developed countries want to let their currency exchange rate depreciate to boost exports, and emerging market countries are reluctant to let their currencies appreciate against developed countries' currencies to stabilize exports. The risk of competitive exchange rate volatility has suddenly increased, and the risk of global exchange rate warfare has become prominent.
The root cause of the rising risk of global exchange rate wars is that after the global financial crisis broke out, global aggregate demand shrank sharply. Developed countries try to reduce imports through the depreciation of local currency, and use domestic demand more to digest domestic production capacity. While emerging market countries are more difficult to boost domestic demand in the short term, they try to stabilize their exports by stabilizing their currency exchange rate. . Therefore, the struggle for global demand has promoted the escalation of global exchange rate disputes.
If it is not properly dealt with, the global exchange rate war is at risk of falling into a global trade war. Imagine that in the pursuit of depreciation in developed countries, and emerging market countries in pursuit of the stability of the currency of developed countries, it is difficult for developed countries to achieve the goal of improving net exports through the depreciation of their currencies. They will inevitably resort to more direct and rude measures. That is, restrictions on imports are directly imposed, and anti-dumping, countervailing, and punitive tariffs are imposed on imported goods from emerging market countries. Trade protectionism initiatives in developed countries, in turn, will lead to emerging-country countries taking resolute measures. As a result of the implementation of the import restriction policy by all parties, it is natural that global free trade has been significantly damaged and the exchange rate war has turned into a trade war.
In view of the consequences of the trade war, the major powers will strengthen consultations between bilateral and multilateral channels to avoid the escalation of the exchange rate war. As Kahn, the president of the International Monetary Fund’s annual meeting, said, all parties should “relax down†and find the most effective way to resolve exchange rate disputes. Balancing the global economy and promoting world economic growth by strengthening international coordination is the only wise way to avoid exchange rate wars and even trade wars.
The main obstacle to international cooperation in avoiding exchange rate disputes is that developed countries led by the United States are trying to transfer the burden of adjustment to emerging market countries. The United States is trying to force a sharp appreciation of the currencies of emerging market countries by reaching a new round of plaza agreements. Given that the sharp appreciation of the local currency will have a significant impact on domestic trade and asset prices, emerging market countries will fully draw on the lessons learned by Japan after signing the Plaza Agreement. Therefore, emerging market countries will categorically reject unilateral adjustment measures. If developed countries go their own way, exchange rate wars and trade wars are hard to avoid.
The key to solving the problem lies in the compromises of the parties after negotiations. Major countries, including major deficit countries and surplus countries, should make their own contribution to the rebalancing of the global economy. The deficit country should increase its national savings rate so that the local currency depreciates appropriately and steadily; the surplus country should increase its domestic consumption rate and allow the local currency to appreciate appropriately and steadily. Countries should make every effort to avoid the ups and downs of the major international exchange rates and implement positive domestic structural adjustments. Only mutual understanding and trust, international coordination and cooperation can avoid exchange rate wars and trade wars. The attitude and measures of beggar-thy-neighbour are not enough.
(The author is deputy director of the International Finance Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences)
The root cause of the rising risk of global exchange rate wars is that after the global financial crisis broke out, global aggregate demand shrank sharply. Developed countries try to reduce imports through the depreciation of local currency, and use domestic demand more to digest domestic production capacity. While emerging market countries are more difficult to boost domestic demand in the short term, they try to stabilize their exports by stabilizing their currency exchange rate. . Therefore, the struggle for global demand has promoted the escalation of global exchange rate disputes.
If it is not properly dealt with, the global exchange rate war is at risk of falling into a global trade war. Imagine that in the pursuit of depreciation in developed countries, and emerging market countries in pursuit of the stability of the currency of developed countries, it is difficult for developed countries to achieve the goal of improving net exports through the depreciation of their currencies. They will inevitably resort to more direct and rude measures. That is, restrictions on imports are directly imposed, and anti-dumping, countervailing, and punitive tariffs are imposed on imported goods from emerging market countries. Trade protectionism initiatives in developed countries, in turn, will lead to emerging-country countries taking resolute measures. As a result of the implementation of the import restriction policy by all parties, it is natural that global free trade has been significantly damaged and the exchange rate war has turned into a trade war.
In view of the consequences of the trade war, the major powers will strengthen consultations between bilateral and multilateral channels to avoid the escalation of the exchange rate war. As Kahn, the president of the International Monetary Fund’s annual meeting, said, all parties should “relax down†and find the most effective way to resolve exchange rate disputes. Balancing the global economy and promoting world economic growth by strengthening international coordination is the only wise way to avoid exchange rate wars and even trade wars.
The main obstacle to international cooperation in avoiding exchange rate disputes is that developed countries led by the United States are trying to transfer the burden of adjustment to emerging market countries. The United States is trying to force a sharp appreciation of the currencies of emerging market countries by reaching a new round of plaza agreements. Given that the sharp appreciation of the local currency will have a significant impact on domestic trade and asset prices, emerging market countries will fully draw on the lessons learned by Japan after signing the Plaza Agreement. Therefore, emerging market countries will categorically reject unilateral adjustment measures. If developed countries go their own way, exchange rate wars and trade wars are hard to avoid.
The key to solving the problem lies in the compromises of the parties after negotiations. Major countries, including major deficit countries and surplus countries, should make their own contribution to the rebalancing of the global economy. The deficit country should increase its national savings rate so that the local currency depreciates appropriately and steadily; the surplus country should increase its domestic consumption rate and allow the local currency to appreciate appropriately and steadily. Countries should make every effort to avoid the ups and downs of the major international exchange rates and implement positive domestic structural adjustments. Only mutual understanding and trust, international coordination and cooperation can avoid exchange rate wars and trade wars. The attitude and measures of beggar-thy-neighbour are not enough.
(The author is deputy director of the International Finance Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences)
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