FX Monetary Policies
“currency wars” were the only thing going on, then we would expect to see the stock market indices in places such as Japan, the UK and Switzerland being boosted by the export-facing sectors. However, while typically export- oriented parts of the market (such as Industrials, Tech or Materials) have done well, they have generally been bested by the more domestic cyclical parts of the market (such as Consumer Discretionaries and Financials). Of course, there may be exporters within these sectors that are typically thought of as more “domestic”, and vice versa. It is certainly the case, for example, when the growing overseas portfolios of large Japanese banks give them more of an “exporter” flavour than in the past. Still, the consistent outperformance across the domestic sectors, and across countries with the largest depreciations, suggests that there is something going on here that is more than simply a currency effect. Rather,
taken together, this
configuration of asset market moves – the real rate declines, steepening in nominal curves, currency depreciation and the pattern of domestic equity sector outperformance – is much more consistent with a bout of monetary easing that is expected to
48 FX TRADER MAGAZINE April - June 2013
prove expansionary, rather than a pure “currency war” interpretation.
Currency Wars vs Trade Wars
Currency wars strike dread into the hearts of most economists because they contributed greatly to the severity of the Great Depression in the 1930s, especially in the worst phase from 1931-33. Te damage done to global trade in that period took several decades to repair, and a repeat
against all of its major trading partners. Many of them responded not by leaving the Gold Standard themselves, but by introducing direct controls over free trade, including tariffs, quotas and (worst of all) exchange controls, all designed to switch expenditure back to their own economies. Tis had the effect of reducing world trade very sharply relative to global industrial production. Te immediate
consequence was chaos
in the production and distribution mechanism which deepened the recession. In the longer term, there was damage to the supply side by reducing the gains from free trade.
Economic theory generally suggests that protectionist policies lead to an inefficient a l l o ca t i on of resources. Ricardo’s famous example of
of this nightmare cannot be entirely ruled out. However,
there are very
large differences between the policies pursued in the 1930s and what is happening now, and the results may also be very different.
Te worst phase of the currency wars in the 1930s was triggered by the departure of sterling from the Gold Standard in 1931, which in effect involved a devaluation by the UK
English-Portuguese trade in wine and cloth served as a basis for the principle of comparative advantage. According to this theory, total output increases if nations engage in free trade.
Is protectionism on the rise?
Protectionism is a very general term, which essentially relies on a notion of fairness. It is extremely difficult to define in detail what protectionism
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94