The Great Debate UK
Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.
The same seems to be true of currency wars, judging by the reports from the meeting of the world’s finance ministers in Moscow, who, according to the FT, asserted that “central banks should not target their exchange rates, but added that monetary easing which had the side-effect of weakening a country’s currency was allowed”. This is a bit like saying that bombing civilians is OK as long as you’re actually aiming at terrorists – which, come to think of it, is more or less what we do say.
If you think it is only in the Economics 101 textbook that currency depreciation follows monetary easing as night follows day, then read on: “Shorting the Japanese yen ….hedge funds [have been] reaping billion dollar profits … in January.” The hedge funds had got the message.
The background to this saga goes back to the dark days immediately following the collapse of Lehman Bros in September 2008, when the US authorities hastily embarked on a campaign of so-called Quantitative Easing (again, as in all modern wars, uncomfortable realities have to be camouflaged in specially-invented newspeak – QE is simply what used to be called printing money). Britain did the same. True, neither the US administration nor the Labour Government of Gordon Brown actually took aim at the exchange rate – at least, not publicly – but the Americans were at the very least unconcerned about the effect on the dollar, and on this side of the Atlantic there was quiet satisfaction when the pound duly fell by 20% against the dollar and 30% against the euro.