One of the world's top economists is very concerned about the state of the global financial system.
"We are in a world that is dangerously unanchored," William White, chairman of the Organization for Economic Co-operation and Development (OECD)'s Review Committee, tells Ambrose Evans-Pritchard, international business editor for The Daily Telegraph
. "We're seeing true currency wars, and everybody is doing it. I have no idea where this is going to end."
Central banks around the world are devaluing their currencies to boost exports. The euro hit an 11-year low of $1.1461 last week.
White was formerly was chief economist to the Bank for International Settlements — the bank for central banks — and now advises German Chancellor Angela Merkel.
Quantitative easing (QE) by the European Central Bank won't work, he says. "Sovereign bond yields haven't been so low since the 'Black Plague.' How much more bang can you get for your buck?" White asks.
"QE is not going to help at all. Europe has far greater reliance than the U.S. on small and medium-sized companies and they get their money from banks, not from the bond market."
With public and private global debt so high, "we are holding a tiger by the tail," White says.
The currency war doesn't have to be a problem for investors, says David Waddell, CEO of Memphis-based wealth management firm Waddell & Associates.
"The result of competing [central bank] priorities and uncoordinated action is higher levels of investor uncertainty and marketplace volatility," he writes in The Memphis Daily News
"Expect more of this in the coming year, as central bank statements and body language direct currency, commodity, fixed income and equity reactions."
But fear not, Waddell says.
"This does not suggest a bad year for investors, but the heavy presence of central banks makes forecasting winners and losers more difficult. Best to be widely diversified."
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