Currency wars - who benefits from them?



Currency wars when this term appears :-

The term "currency wars" appeared and was first used in 2010 in a statement by Brazilian Finance Minister Guido Mantega . When he warned of a Currency wars, you were about to start.

Its high exchange rates due to the massive influx of US dollars flood coming from the United States in a desire to take advantage of the high growth rates and speed of capital turnover.

This was a logical result of the quantitative easing process launched by the Fed at the time by "Ben Bernanke" and his companions on the open Market Committee to support his country's economy.

These capital inflows have caused exporters in Brazil and other emerging countries to be in a vulnerable competitive position, forcing the government of the Latin state to levy taxes on foreign capital, as a result of which the growth of the economy has almost ceased since 2013 until it shrank recently in the second quarter this year and The local currency continued to decline..

How to reduce currency value ?

Currency value can be reduced by means of

1-Direct intervention: This is a traditional way for central banks to sell local currency and buy their foreign counterparts, thereby contributing to the devaluation of the first.

2-Interest rate employment: lowering the interest rate contributes to pressure on and abandonment of the local currency as it does not encourage borrowing or amounts to cheap money that does not give its owner an advantage.

3-Quantitative easing: This famous tool was employed by the US central by buying debts, sovereign bonds and other assets in exchange for a liquid infusion.

4-War of statements: statements by policy makers can give effect to any of the previous instruments by putting pressure on the currency and then lowering its value, but this may not bear fruit if the currency is strong and is a safe haven, for example, the Bank of Japan, which called for the launch of a quantitative facilitation program in 2013.


Who started the currency war?

It can't be determined exactly who launched this war. All countries deny responsibility for this and claim that what they do is just a reaction to protecting their economy, but we can say that .

1 - When you see more than 20 countries, including major economies, between January and April this year, either lowering the interest rate or activating measures to support monetary policy easing, especially the European Central, what does that mean? It's a Currency, no doubt.

2- Despite Japan's implementation of a quantitative facilitation program before America, launched by the Bank of Japan in March 2001 to fight price deflation, the notorious "quantum easing" program launched by the Federal Reserve in 2009 had its first version, the second in November 2010, and the third in September 2012 Longer the most influential months.It is true that many countries have taken a similar approach, but after a severe financial crisis such as the first from USA to the world 2007-2008, the federal bank moved to support the economy of his country, but in turn the world was in crisis.
At the time, US Treasury Secretary "Timothy Jaithner" on most occasions and encounters pressed China, whose currency remains undervalued, giving its exporters a competitive advantage and giving the labor market more jobs at the expense of the United States.


3- China is on Aug. 11 to reduce the value of the yuan in support of its exports to be charged with spreading turmoil in world markets.




who benefits from them?

It is possible to say that there is no benefit from this war because its consequences will be negative for everyone, and if the degree of negative influence is different, the impact will be strongest on developing countries and emerging markets in Asia, Africa and South America.

With the end of the quantitative easing program in October 2014, a budget of more than $3.5 trillion was inflated, almost as large as Germany, and stock prices on Wall Street swelled with record levels of indicators.

This is a huge bill, no doubt. The world will pay its results, not only the United States, but everyone is linked in one way or another with the US dollar, especially in the bond market, where central banks invest a large part of their reserves.

1- With export subsidies, there is a movement of investments as well as wealth to export-dependent sectors, neglect of the rest of the sectors and hence internal structural disruption.

2- The worst may happen in terms of long-term productivity reduction, where the importation of equipment and machinery remains costly for local firms, and if the devaluation does not parallel real structural reforms, productivity will eventually be compromised.

3- The obstruction of world trade due to the ambush of "trade protection" by some countries in the face of a backlash against the reduction of their business partners.

4- Prevent foreign investment from entering the discounted state for its currency why? The reduction process may cause currency fluctuation, which means a higher cost to hedge enterprises and companies wishing to invest and then escape or not come in the first place.



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