The Misdirection of the "Currency Wars" Debate

  • 15 Nov 2012
  • By Marc Chandler
  • Topics: FX

Low-Rate Policies of U.S., Europe Can Help Emerging Markets

Misdirection is a standard ploy of both magicians and politicians, where the audience is distracted by a feint. So it is with recent "currency war" arguments, as emerging-market countries such as Brazil blame low-rate policies of the U.S. and others for destabilizing their economies, analyst Marc Chandler recently wrote.

Brazilian Finance Minister Guido Mantega is among those leading the charge, contending the near-zero rates in global superpowers have "sparked powerful forces that destabilize emerging market economies through capital flows, driving their currencies sharply higher," Chandler wrote recently on his "Marc to Market" blog.

But currency wars "seem to be more in the realm of rhetoric than politics," Chandler said. Even if there are costs for developing countries from the easy monetary policy of advanced economies, there are also benefits, he said. Low rates are meant to help boost in aggregate demand in the U.S. and Europe, which would stimulate trade as well as underpin growth in emerging markets.

"Aggressive monetary policy in the face of a weak domestic economy is not the equivalent of a currency war," Chandler said. He's Global Head of Currency Strategy at Brown Brothers Harriman in New York.

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