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Despite the fluctuations, we’re not in a currency war yet

12 0 0
10.08.2018

Just as reporters are quick to attach the suffix “-gate” to any story with the whiff of scandal, investors are keen to label any disruption to markets a “war”; recall that around the implementation of broad quantitative easing programmes, we had the “battle of the banks”, or how rising US protectionism quickly became a “trade war”.

Over the past couple of weeks, more investors have been asking me if we are in the early stages of a currency war.

“Currency war”, like “trade war”, is a loaded term. A currency war is when countries directly try to push the value of their currencies down so that they may gain an advantage over trading partners, also called competitive devaluation. Around the 2008 financial crisis, most major central banks were accused of purposefully trying to lower the value of their currencies through their aggressive policy response to the crisis. The term “currency war” does not spring up on its own – discussion of a currency is always tied to discussions of ongoing market phenomena.

Currencies reflect investors’ perceptions of the market outlook in countries relative to one another, as well as the relative availability of assets in each currency. Currencies rarely, if ever, move in........

© South China Morning Post