ACADEMIA DE STUDII ECONOMICE BUCUREȘTI
Who wants to win the “currency war”?
A study on the article “One more such victory” from “The economist”
Facultatea de Finanțe, Asigurări, Bănci și Burse de Valori
One more such victory
The emerging economies are winning the currency war. No one is celebrating
The article we are commenting on today appeared in the online edition of “The Economist” on October, 1st and is called “One more such victory”. It brings out the situation of some emerging economies that seem to be winning the so-called currencies’ war in the context of the global economic crisis. We learn about the central banks’ efforts to slow their currencies’ fall, because even though these tumbling exchange rates might be considered a victory, it comes at such high costs, that nobody is celebrating. The article also mentions important aspects of some emerging economies, such as Brazil, China, Korea, Poland, Thailand etc., the situation of Greece, the stagnation of the American economy and the slow pace the European one converges on. In addition, we find out about international trade, inflation, exchange and interest rates and the actions that governments take in order to stimulate their countries’ economies. However, the author does not forget to mention the consequences that some of these actions may have on the future development of certain economies. For example, the central Chinese government may decide that the economy needs a new stimulus, but banks may not be that willing to get involved; it this happens, the situation will become slightly different than expected. As it usually happens, no matter how high their success rate is, big chances are for casualties to exist.
In this article we have identified the following keywords: currency, emerging economy, bank, interest and exchange rate, government, global spending.
In the beginning, we find out about the Brazilian finance minister, Guido Mantega, who first mentioned the “currency war” about a year ago. In my opinion, in the context of the global crisis, it shouldn’t come as a surprise that every country would try to protect its economy in some way. Mr. Mantega worried about governments trying to weaken their currencies, which actually happened, because the American dollar fell by 11% against the Brazilian real. Of course, this was a big disappointment to the manufacturers in Brazil and it was necessary for several taxes and restrictions to be imposed in order to overcome the problem. And Brazil was not the only emerging economy that had to do so. I consider that we should expect similar occurrences in the future, as every country is mainly worried about its own economy and chances are that governments take actions that will influence in a way or another the situation of other economies. Paragraph 2.
If until now we have dealt with a weakening of the currencies, we observed that the economy changes constantly. So the invasion of foreign capital wich affected the appreciation of currencies entered into a shambolic retreat. Why shambolic? Because we have witnessed a fall of the exchange rates of almost every emerging economy since the beginning of August. This fall is caused by the extern outflows. So, it isn’t enough to impose taxes and other restrictions in order to change the situation that the emerging economy was in. The economists observed this phenomenon and they have tried to coach a currency rise. The final solution was decided by central banks across the emerging world which intervened to slow this falling. All things considered, this currency war dragged all the economy agents in a constant fight to gain competitiveness against the others. However, in this case we talk about a Pyrrhic victory for the winner.
The third paragraph brings an explanation of the term “Pyrrhic”, used in the previous one to describe the victories that the tumbling exchange rates may...
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