Seven economies across the globe entrenched in currency wars

On the same day Germany expressed outrage at Japan for expanding their monetary supply, and devalued their currency, the United Kingdom (U.K.) issued their own set of new monetary polices meant to weaken the Pound Sterling, and improve exports.When it was announced in late November that Goldman's Mark Carney would become head of the BOE, we said that one has to be insane to be buying the GBP at those levels. Sure enough, it took just two short months before the implications of yet another Goldmanite's pro-inflationary policies would become apparent. To wit:KING SAYS BOE IS READY TO PROVIDE MORE STIMULUS IF NEEDEDKING SAYS QE WAS CRUCIAL IN AVOIDING U.K. DEPRESSIONKING SAYS U.K. BANKS SOME WAY FROM CONVINCING MARKETS ON SAFETYKING SAYS POUND DROP WAS NEEDED FOR U.K. REBALANCINGKING: U.K. 4Q GDP ALMOST CERTAINLY CONSIDERABLY WEAKER THAN 3QAnd the punchline:KING SAYS REBALANCING NEEDED TO AVOID CURRENCY WARS - ZerohedgeSince the U.K. initiated this new guidance on Jan. 22, the British Pound has strengthened against the U.S. dollar, going from .8358:1 to .8618.On Jan. 22, a German party official from the Christian Democratic Union, and current ruling party in Germany, responded to the monetary actions Japan initiated one day before by seeking council with other G-20 nations to put pressure on Japan to cease this new economic and monetary course.German discomfort at Japan’s monetary policy occurs at a critical juncture in the health of the euro-area economy, including that of its German motor. Merkel, who is seeking a third term at federal elections this fall, may have to fall back on German exports to help bolster economic growth that the government forecasts to be just 0.4 percent this year.Germany, Europe’s biggest economy, whose exports are forecast to grow 2.8 percent this year from 4.1 percent in 2012, will probably seek the support of fellow Group of Eight and G-20 states to persuade Japan to rethink manipulating the yen’s exchange rate, said Meister. - BloombergOver the past 10 days since Germany began protesting against Japan's monetary easing policies, the Euro has strengthened from 1.3317:1 against the U.S. dollar to a closing high of 1.3644 on Jan. 31.On Jan. 21, Japan's newly elected Prime Minister set forth a new round of monetary easing which would weaken the Yen, and help export sales.In the most anticipated of policy actions, the BoJ and the Japanese government have unveiled a new monetary policy to complement the $116bn fiscal stimulus plan to boost growth.*BOJ TO ADOPT 2% INFLATION TARGET*BOJ WILL INTRODUCE OPEN-ENDED PURCHASING FROM JAN 2014*BOJ TO BUY 2T YEN OF JGBS MONTHLY FROM JAN 2014*BOJ TO BUY ABOUT 10T YEN OF T-BILLS MONTHLY FROM JAN 2014 - ZerohedgeSince these new policies were put into affect on Jan. 21, the Yen has actually strengthened from 90.05:1 versus the U.S. dollar to a closing price 92.18 just 10 days later.View the list »
Currency Wars

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A nation's currency is only as good as the confidence its citizens and external trade partners have in its value and solvency. Nations that value a strong currency will experience low inflation, but can expect a trade deficit in the buying and selling of goods. While those who depend upon export and trade as the lifeblood of their economies, will allow or manipulate their currencies lower, so their goods will be cheaper on the global markets.

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Beginning in January of 2013, the recognition of a global economic slowdown, similar to what took place in 2007 that led to the global credit crisis, is once again on the horizon, and is now affecting many more developing nations. In response to this economic slowdown, and pullback on export sales, seven countries, starting with Japan on Jan. 21, have introduced new monetary policies to devalue their currencies. In what is being known as the currency wars, the nations of Japan, Germany, the United Kingdom, Iran, Taiwan, South Korea, and China are all in one form or another, devaluing their currencies in an attempt to be the first to reach the bottom.

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  • On Jan. 21, Japan's newly elected Prime Minister set forth a new round of monetary easing which would weaken the Yen, and help export sales.In the most anticipated of policy actions, the BoJ and the Japanese government have unveiled a new monetary policy to complement the $116bn fiscal stimulus plan to boost growth.*BOJ TO ADOPT 2% INFLATION TARGET*BOJ WILL INTRODUCE OPEN-ENDED PURCHASING FROM JAN 2014*BOJ TO BUY 2T YEN OF JGBS MONTHLY FROM JAN 2014*BOJ TO BUY ABOUT 10T YEN OF T-BILLS MONTHLY FROM JAN 2014 - ZerohedgeSince these new policies were put into affect on Jan. 21, the Yen has actually strengthened from 90.05:1 versus the U.S. dollar to a closing price 92.18 just 10 days later.
  • On Jan. 22, a German party official from the Christian Democratic Union, and current ruling party in Germany, responded to the monetary actions Japan initiated one day before by seeking council with other G-20 nations to put pressure on Japan to cease this new economic and monetary course.German discomfort at Japan’s monetary policy occurs at a critical juncture in the health of the euro-area economy, including that of its German motor. Merkel, who is seeking a third term at federal elections this fall, may have to fall back on German exports to help bolster economic growth that the government forecasts to be just 0.4 percent this year.Germany, Europe’s biggest economy, whose exports are forecast to grow 2.8 percent this year from 4.1 percent in 2012, will probably seek the support of fellow Group of Eight and G-20 states to persuade Japan to rethink manipulating the yen’s exchange rate, said Meister. - BloombergOver the past 10 days since Germany began protesting against Japan's monetary easing policies, the Euro has strengthened from 1.3317:1 against the U.S. dollar to a closing high of 1.3644 on Jan. 31.
  • On the same day Germany expressed outrage at Japan for expanding their monetary supply, and devalued their currency, the United Kingdom (U.K.) issued their own set of new monetary polices meant to weaken the Pound Sterling, and improve exports.When it was announced in late November that Goldman's Mark Carney would become head of the BOE, we said that one has to be insane to be buying the GBP at those levels. Sure enough, it took just two short months before the implications of yet another Goldmanite's pro-inflationary policies would become apparent. To wit:KING SAYS BOE IS READY TO PROVIDE MORE STIMULUS IF NEEDEDKING SAYS QE WAS CRUCIAL IN AVOIDING U.K. DEPRESSIONKING SAYS U.K. BANKS SOME WAY FROM CONVINCING MARKETS ON SAFETYKING SAYS POUND DROP WAS NEEDED FOR U.K. REBALANCINGKING: U.K. 4Q GDP ALMOST CERTAINLY CONSIDERABLY WEAKER THAN 3QAnd the punchline:KING SAYS REBALANCING NEEDED TO AVOID CURRENCY WARS - ZerohedgeSince the U.K. initiated this new guidance on Jan. 22, the British Pound has strengthened against the U.S. dollar, going from .8358:1 to .8618.
  • China is well known as a global currency manipulator, keeping its monetary price down to ensure their exports dominate the global economy.  This is validated by the fact that very few central banks around the world have an official Yuan currency exchange.However, these policies have not protected the second largest economy in the world from being forced to monetize, and in many cases, bailout their own companies where bond defaults are leading to a growing credit crisis, and potential bursting of their housing bubble.
  • There are political and economic consequences to debasing, or weakening a currency, and on Jan. 22, the ramifications of said monetary polices in Iran led to the firing of the head of the Iranian central bank.  As hyperinflation began to rage across the country, an Iranian court found the former central bank governor guilty of illegal fund disbursement, which may have simply been the public announcement made to hide the fact that the government's monetary policies to fund the nation amidst international economic sanctions failed.
  • Unlike the United States, and many Western nations, public demand for gold in the nation of India is a centuries old tradition, and a popular way for the people to protect their wealth from devaluing currencies.  As the demand in 2012 and early 2013 has grown, the Indian government on Jan. 22 began instituting large import taxes and duty hikes on the precious metal, to try to keep millions of citizens from exchanging a weakening currency for the asset protection of gold.India more than doubled the import duty on gold dore bars and ores on Tuesday, hard on the heels of a hike in taxes on refined gold, as the government tries to curb demand in the world's biggest importer of bullion and rein in a record current account deficit.Rising imports of gold have worried the government, which is battling a record high current account deficit. It is trying to curb gold imports to about $38 billion in the year to March 31, 2013, down from $58 billion a year earlier. - ReutersLike China and Russia, Indian citizens are recognizing that trust in fiat currencies, no matter who strong they may be in the global market perception, are not as viable in their local economies as physical gold.
  • South Korea was late to the currency devaluation party, but after 10 days of seeing money move out of their markets, and financial titans like Samsung and Hyundai Motors losing market share to cheaper Japanese and Chinese goods, the Asian economic power is ready to impose heavy taxes and tariffs in imports, which embodies a major escalation to the simple game of currency devaluation.South Korea's threat to impose a broad tax on financial transactions is the first sign of deepening concern in Asia that speculation of competitive currency devaluations is prompting investors to head for the exit.The risk is that the threat of policy action will prompt more market selling, pushing currencies down yet further and raising investor fears of the competitive devaluations that policymakers are trying to avoid. - Business TimesWhen nations begin to enact tariffs on imports, it usually represents a complete entrenchment of a nation protecting their economy at all costs.  Global tariffs were the prime catalyst that led to the Great Depression, and to revolutionary overthrows of sovereign governments.
  • The Thai economy is being affected by the growing currency war, but due to devaluation actions the small country took during the 1997 economic crisis, Thailand is extremely wary of manipulating their currency to compete against stronger Asian nations.Thailand’s Finance Minister Kittiratt Na-Ranong said the central bank should avoid fighting market forces to stem currency gains, heeding a lesson from the 1997 Asian financial crisis.“The shadow of 1997 is there,” Kittiratt said in an interview in Bangkok. “I will never encourage Bank of Thailand to go and trade against the market-determined rate unless it’s only part of the daily stability, the weekly stability.”Thailand is among emerging market nations struggling to handle increased inflows as monetary easing in the U.S., Japan and other developed economies spurs demand for higher-yielding assets. Prime Minister Yingluck Shinawatra raised the minimum wage throughout the country this month, putting more pressure on exporters as the government implements stimulus measures aimed at boosting purchasing power among Thailand’s 67 million people. - BloombergWhether Thailand can remain neutral in the ever growing currency war will depend heavily on the G-20, and on whether their strong currency will attract more foreign investment as money is moved from weaker economies.
  • This chart shows how the currencies or each nation is are relation to the U.S. dollar, and other countries.  In one form or another, most industrialized economies use monetization policies to improve trade balances, strengthen or weaken their currencies dependent upon inflation risks, and in a few cases, use their currency as an economic weapon.
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, Finance Examiner

As a historian in his primary field of study, and an investor in the real world, Kenneth has a keen perspective on all facets of the financial world. He has owned his own business and corporation, and has been an investor in many different markets such as securities, real estate, currency trading...

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