Can the U.S. Save the World? (House Testimony) [View article]
"Unfortunately, IMF credibility has been somewhat damaged by its inability to follow through on exchange rate surveillance, particularly with regard to China. While there seems to be a movement towards implicit agreement among leading countries, in and around the G20, to take this issue off the table, that would be a serious mistake. Countries must not think that competitive devaluation (or even sustaining accidental undervaluation) is a sensible or attractive policy. This will lead to greater global imbalances and potential instability, as some countries compete to get current account surpluses and other countries – willingly or not – run deficits."
I haven't taken a class in international monetary policy, but from what I do know, currency setting seems to be a political weapon used by governments to influence global economic trade winds in favor of their country. I can't see it in any other setting. This is where the economy becomes political, and the last sentence of the above paragraph seems to imply that it can be some other way. I don't think it can.
IMHO, this is one cause for Japan's low rates for the past decade or two. These rates were used for the international 'carry trade' which, as long as the yen remained stable or appreciated (which it has), remained profitable for participants - mainly Western hedge funds. In politics, the ends tend to justify the means, so I believe there was some behind-the-scene negotiating by Western powers to pressure the Japanese into keeping rates low, and the currency stable. Politically, this would support 'stability' in the region, and keep Japan docile.
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"Unfortunately, IMF credibility has been somewhat damaged by its inability to follow through on exchange rate surveillance, particularly with regard to China. While there seems to be a movement towards implicit agreement among leading countries, in and around the G20, to take this issue off the table, that would be a serious mistake. Countries must not think that competitive devaluation (or even sustaining accidental undervaluation) is a sensible or attractive policy. This will lead to greater global imbalances and potential instability, as some countries compete to get current account surpluses and other countries – willingly or not – run deficits."
May 15 01:32 AM
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All Comments by Ricard »Can the U.S. Save the World? (House Testimony) [View article]
I haven't taken a class in international monetary policy, but from what I do know, currency setting seems to be a political weapon used by governments to influence global economic trade winds in favor of their country. I can't see it in any other setting. This is where the economy becomes political, and the last sentence of the above paragraph seems to imply that it can be some other way. I don't think it can.
IMHO, this is one cause for Japan's low rates for the past decade or two. These rates were used for the international 'carry trade' which, as long as the yen remained stable or appreciated (which it has), remained profitable for participants - mainly Western hedge funds. In politics, the ends tend to justify the means, so I believe there was some behind-the-scene negotiating by Western powers to pressure the Japanese into keeping rates low, and the currency stable. Politically, this would support 'stability' in the region, and keep Japan docile.