The Great Debate UK

Why the world needs a weaker dollar

IRAN-CURRENCY/RATE/Kathleen Brooks is research director at forex.com. The opinions expressed are her own.

Ever since the last Federal Reserve meeting when the prospect of further policy stimulus for the US gripped the market, dollar weakness has been the dominant theme in FX. The Fed action is considered in some quarters as a backdoor form of currency devaluation, and there has been talk of a global “currency war” as a result.

But is a weak dollar really that bad for the global economy? Those countries who argue yes tend to concentrate on self-preservation since a weak dollar makes higher yielding economies’ exports less competitive. Since everyone wants to be able to sell to the US – the biggest single consumer market in the world – when the dollar moves in any significant direction the world takes notice.

Already Brazil and South Korea, whose currencies have risen strongly this year, have embarked on capital constraints to try and dissuade “hot money flows”, amid fears that a strong currency will derail economic growth. Chinese premier Wen Jiabao even went so far to say that a rapid strengthening of the renminbi against the dollar would be a “disaster for the world.”

from Breakingviews:

China’s yuan: a guide for the perplexed

By John Foley and Wei Gu

China's plans to make its currency global could change the world -- if they get off the ground. More international use of the yuan might increase China's trade clout, unseat the mighty U.S. dollar and make a lot of financiers very rich in the process. But it can be hard to separate the facts from the fable. Here are some questions answered.

Why are people talking about an international yuan?

China is the world's second-biggest economy. But its currency doesn't nearly match its size. For most international dealings, China relies on the dollar, which leaves it beholden to the United States. Beijing wants more influence on the global stage, so it has been taking baby-steps to turn the yuan into an internationally used currency.

Waiting for the other shoe to drop

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USA/

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own and do not constitute investment advice. -

The unemployed and the terminal insomniacs who have nothing better to do than read my blogs will know that I have long been gloomy about most of the Western economies. How can you fail to be pessimistic when the world economy is still dominated by the U.S. – a basket case, becoming weaker every day, with a political class too blind or too scared to admit in public the obvious fact that the country cannot carry on living beyond its means?

Subject of Europe set to trip Liberal Democrat Nick Clegg

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Jane Foley- Jane Foley is research director at Forex.com. The opinions expressed are her own. -

Over the past week the British electorate has taken a shine to Liberal Democrat leader Nick Clegg.

from The Great Debate:

Real commodity prices and the U.S. rate cycle

-- John Kemp is a Reuters columnist. The views expressed are his own. --

Commodity prices exhibit a strong cyclical component -- though it can be masked when producers are carrying a lot of excess capacity.

The attached chart shows the real price of various commodity baskets (Jan 1980=100) overlaid by U.S. interest rates (discount rate, later funds target), and the business cycle (NBER Business Cycle Dating Committee).

from MacroScope:

What can Kan do?

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Mixed reaction from major European banks to appointment of Naoto Kan as new Japanese finance minister. ING is pretty scathing, saying the appointment sidesteps a process of change Japan must undertake to avoid further stagnation or a fate far worse.

"PM Hatoyama has appointed someone with no experience in economic management... Mr. Kan takes on the finance minister role without a well documented, deeply considered policy agenda. Here we rely on reports of positions he has taken in the Cabinet, and from public statements on economic management. These suggest his instincts are to pursue a stimulus strategy involving higher government spending; a weaker yen and ultra-loose monetary policy. Mr. Kan appears tone deaf to microeconomic reform or to the threats to financial stability posed by high public debt."

from The Great Debate:

Welcome to the Teenies, sorry about those returns

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-James Saft is a Reuters columnist. The opinions expressed are his own-

As we say goodbye to a decade so abysmal it never even earned a nickname, it is time to take bets on how the coming 10 years will shape up in economics and financial markets.

Welcome, then, to the Teenies, a word that will describe the decade as well as the small returns in financial markets and the shrinking financial sector it will bring.

from The Great Debate:

Global rebalancing to weaken dollar, quietly

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-- Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own --forex

Twenty-four years ago, major nations called for depreciation of the dollar to rebalance the global economy. Now, as another effort at rebalancing looms, the dollar will again bear the brunt -- though officials will try to ensure its fall is less dramatic this time.

from The Great Debate:

Don’t cry for the dollar, yet

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agnes1-- Agnes T. Crane is a Reuters columnist. The views expressed are her own --

It looks bad for the dollar, but looks can be deceiving.

Its sharp decline in the last week has pushed the euro to its highest level in a year and reignited fears that there's only one place for the dollar to go, and that's down.

Rhetoric from influential investors like Warren Buffett as well as big foreign buyers of U.S. debt like China and Russia has fed that sense of doom.

from Commentaries:

Love affair with FX reserves

The post-crisis world order is starting to look distressingly similar to the old one.

Swollen foreign-exchange holdings helped set the stage for the meltdown by suppressing interest rates and boosting mortgage lending in the United States.

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