Root causes of currency wars

Simon J Evenett, 14 February 2013

Discussion of currency wars has broken out again in the run-up to this week’s G20 finance ministers' meeting in Moscow. This column points to the underlying policy choices responsible for the recurring currency disputes and the feeble ex-post rationalisations for them.

Once dismissed as self-serving grandstanding by the Brazilian finance minister in 2010, claims that the world is closer to a currency war have returned. This time the proximate cause appears to be the publicly stated policies of the new Japanese government aimed at shaking off a decades-long economic malaise.

Topics: Global economy
Tags: currency war

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An overlooked currency war in Europe

Daniel Gros, 11 October 2012

Switzerland has pegged its currency to the euro at a level that helps it sustain a 12% current-account surplus and one of the lowest unemployment rates in Europe. This column argues that the Swiss peg involves currency manipulation that is, as far as Europe is concerned, the same order of magnitude as China’s intervention. It has had a significant impact on the euro exchange rate and a non-negligible effect on the EZ economy.

A current-account surplus is the mirror image of a capital export. A country that is running persistent current-account surpluses is thus persistently exporting capital. An important question to consider is which sector is investing abroad, the private or the public sector?

Topics: Macroeconomic policy
Tags: currency war, euro exchange rate, Swiss franc peg