Is The Third Currency War In The 21St Century Starting?

Some media said that the concept of "global currency war" was proposed by G. Mantega, the former finance minister of Brazil, in September 2010. Because the Federal Reserve has launched the second quantitative easing monetary policy, which has led to the devaluation of the US dollar. Many trade leaders have turned to countries to maintain export competitiveness and compete with each other to devalue their own currencies, thus causing one currency war after another in the 21st century. At present, the third currency war in the 21st century is starting.

However, in China, the word "currency war" has been very popular for a long time, and has launched series after series under the title of "currency war". As for such books, I pointed out that the theme of such books was to regard the history of human finance and trade as a history of currency war. The whole human race is developed in this kind of killing and bloody plunder. But in fact, if the market competition is only regarded as a war, then the market cannot become the best system for human economic development, and this economic system will be eliminated long ago. Moreover, some fantastic ideas put forward by such books have long been eliminated by the market. For example, to solve the financial crisis, we must return the monetary system to the gold standard, and the Federal Reserve is a private bank. Therefore, although the concept of "currency war" will attract more people, I do not believe that it is also a responsibility to analyze the harmfulness of its concept.

Now some people believe that since the 21st century, there have been three currency wars in the world. For example, the first currency war in the 21st century focused on the US dollar. Between June 2010 and March 2011, the nominal effective exchange rate of the US dollar depreciated by 7.79%; China pegged its exchange rate to the US dollar, and the nominal effective exchange rate index of the RMB also depreciated by 4.44%; The euro and the commodity exporting countries, because they did not participate in the devaluation of currency competition, have a completely different situation. Among them, the nominal effective exchange rate of the euro appreciated by 5.38% during this period, making the euro zone economy unable to benefit from exports at that time; The nominal effective exchange rates of the Brazilian lira and the Australian dollar rose by 2.26% and 9.97% respectively. Not only did the export competitiveness suffer, but also the economy of these two countries was depressed, and the hot money inflow blew up the real estate bubble.

The second currency war means that Shinzo Abe took office as Japanese Prime Minister in 2012 to promote Abenomics and the Federal Reserve launched quantitative easing policy again. The protagonist of this currency war is the yen. From July 2012 to December 2013, the effective nominal exchange rate of yen depreciated by 25%; The US offset its competitive disadvantage by promoting QE3, and the nominal effective exchange rate index of the US dollar rose only 0.2%. However, the nominal effective exchange rate index of the euro and the Korean won rose by 11% and 10.9% respectively; The nominal effective exchange rate of the RMB appreciated by 7.4%

The third currency war in the 21st century began in the second half of 2014, and the euro launched this currency war. In June, the European Central Bank (ECB) implemented a negative interest rate and launched a long-term financing operation (TLTRO), and in September, it announced the plan to promote ABS and guaranteed bond purchase. After that, the exchange rate of the euro against the dollar depreciated from 1.39 on May 6 to 1.24 on November 24, a depreciation of 10.8%.

Also, after the Bank of Japan unexpectedly announced the further expansion of quantitative easing monetary policy on October 31, the yen also joined the ranks of competitive devaluation. The exchange rate of the yen against the US dollar declined from 109.42 on October 30 to 118.41 on November 24. The sharp depreciation of the yen has seriously threatened the export competitiveness of South Korea and Taiwan, leading to the corresponding devaluation of the Korean won and the New Taiwan dollar by 5.4% and 1.8% over the same period.

In contrast, although the US dollar index has appreciated 10.5% since July, becoming the most powerful currency in the world, the RMB appreciated only 1% against the US dollar during the same period, and the RMB nominal effective exchange rate index has appreciated nearly 10% since July, becoming the biggest victim of this wave of global currency wars. In order to mitigate the erosion of exchange rate appreciation on export competitiveness and reduce the risk of domestic real estate collapse, the People's Bank of China unexpectedly announced an interest rate cut on November 21, and on November 24, the exchange rate of RMB against the US dollar turned to depreciate by 0.3%.

From the perspective of the currency war mentioned above, it mainly refers to the appreciation or depreciation of the currency due to changes in monetary policy and economic conditions. It regards the devaluation of the currency as beneficial, while the appreciation of the currency is unfavorable. In fact, this view is only based on whether the currency change is conducive to trade and export, and other aspects are irrelevant. But this is not the case. For example, the devaluation of the yen has not had such a big impact on Japan's domestic economy. Its exports account for less than 20% of the gross domestic economy. Export growth is meaningful to economic growth, but not so big.

Moreover, the appreciation or depreciation of the currency exchange rate is not only a double-edged sword, but also a major interest relationship adjustment. If a currency continues to appreciate or depreciate, it not only involves the redistribution of interests between different countries, but also involves the adjustment of the central bank's monetary policy and the incentive orientation of enterprises. At the same time, it also involves the ability of the currency to continue to appreciate.

I have always advocated that gold The standard one price mechanism is different. The current international monetary system, which is dominated by the credit currency US dollar, needs to use a standard or an economic econometric model to determine a currency The price relationship with another currency is completely impossible. In this case, the appreciation or depreciation of the currency depends entirely on national interests, rather than just an appearance seen by the market.

Therefore, the above analysis believes that after the third currency war in the 21st century, due to the excessive appreciation of the nominal effective exchange rate of the RMB, China has to participate in this currency war, and devalue the RMB by reducing interest rates, in order to enhance China's economic export competitiveness. This analysis is not necessarily correct. Because, through economic transformation, China's economy has begun to get rid of its complete dependence on exports and to turn to domestic consumption and investment. In this case, China's domestic demand is far stronger than its exports, and the devaluation of the RMB will certainly be detrimental to China's imports. Especially when a large amount of capital flows out of China due to the sharp depreciation of the RMB, the problems faced by the Chinese economy will be even greater. However, the RMB cannot be unilaterally revalued, which will also lead to the influx of hot money into China, leading to further expansion of the real estate bubble.

In fact, international market Exchange rate change is not a currency war. Investors should pay more attention to the flow of funds due to currency exchange rate change. This flow of funds may cause a major adjustment in the pattern of interests in the international financial market, causing sharp fluctuations in asset prices in various countries. This is what investors should pay most attention to, rather than a hypothetical currency war. As long as it is the market, the exchange rate will always fluctuate. The change and fluctuation of the exchange rate is not a war, but a normal state. Only by grasping this normality can investors win in the fluctuation of exchange rate.