Tags: currency | war | ECB | policy

Financial Times: Currency War Isn't the Issue

By    |   Monday, 26 January 2015 01:33 PM

The European Central Bank (ECB)'s decision last week to launch a 1.1 trillion euro quantitative easing (QE) program led many experts to conclude that a currency war is raging — one that began a few years ago. But editors at the Financial Times don't view it that way.

In fact, they see the harm coming from adverse reaction to the supposed currency war, not the supposed war itself.

"The threat looms of international economic relations being poisoned for years by fresh denunciations of deliberate competitive devaluation," the editorial states.

That criticism missed the mark when it was aimed at the Federal Reserve's QE programs, and the same is true now, the editors argue.

"Any loosening of monetary policy relative to expectations is likely to weaken a currency. The question is whether the eurozone is seeking deliberately to do so as a main aim of its policy (probably not) and whether trading partners have the ability to respond appropriately (they do)," they state.

"There is little to suggest that the ECB is skewing its policy easing toward weakening the exchange rate. It has not started buying foreign-denominated assets; it has not talked about a desired range or target for the currency," they add.

"If the ECB wants QE to work through the exchange rate, it will probably hope in vain. Most external trade of eurozone countries . . . is within the single currency area. The amount they buy from, and sell to, countries outside the 19-member bloc equals less than one-fifth of the eurozone economy. The single currency area already runs a sizeable trade surplus and its chronic problem is weakness in domestic demand. It will not be rescued by a devaluation-induced boost to exports."

A more conventional view is that of Art Cashin, UBS' director of floor operations at the New York Stock Exchange. "So far it is a war, but it's being played like a chess match," he tells CNBC

"That laid-back cerebral attitude is going to disappear. At some point somebody is going to get their currency to a place where it's going to cause enough pain to somebody else, and then it's going to turn into a real war. . . . This currency war cannot go well. They never have."

Cashin doesn't think the ECB's move will accomplish much beyond a weaker euro. The currency hit an 11-year low of $1.1098 Monday.

© 2020 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
Finance
The European Central Bank (ECB)'s decision last week to launch a 1.1 trillion euro quantitative easing (QE) program led many experts to conclude that a currency war is raging — one that began a few years ago. But editors at the Financial Times don't view it that way.
currency, war, ECB, policy
397
2015-33-26
Monday, 26 January 2015 01:33 PM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved