Global currency wars spread
Duncan Richardson, News Editor
16 Feb 2015, 2:54 p.m.
U.S Investment bank Morgan Stanley has warned if countries continue to devalue their currencies in an attempt to increase competitiveness the world will revisit the “ghosts of the 1930’s.”
As a result of the ECB’s decision to launch a 1 trillion euro QE program the euro has weakened in the international currency markets putting pressure on its major trading partners to weaken their currencies and protect their export markets.
Last week Sweden’s Central Bank cut interest rates to -0.10% and launched their version of quantitative easing. Many analysts believe the move is a deliberant attempt to weaken the Krone and protect the countries industrial base and exporters. Debasing the national currencies will not solve the underlying issue of falling global demand.
The Danish Central Bank reduced their interest rate four times this month and spent 32bn euros in 2014 in the attempt to protect its euro peg.
The Swiss National Bank decided to quit their peg with the euro instead of manipulating the value of the Swiss franc lower after suffering considerable losses. In Asia Chinese exporters are suffering after the Japanese Central Bank implemented a massive QE program and lowered the value of the Yen by 50% to the Chinese Yuan.
Investment professionals are becoming extremely concerned that quantitative easing and low interest rates are getting out of hand and could damage the health of the economy. Austrian economists are also concerned Central Bank intervention is causing massive imbalances in the world economy.