jueves, 12 de febrero de 2015

jueves, febrero 12, 2015
The Outlook

Central Banks Move to Drive Down Currencies, Yielding Domino Effect

Interest-Rate Cuts, Asset Purchases Ricochet Through Foreign-Exchange Markets; ‘Unspoken Currency War Has Broken Out’

By Brian Blackstone

Updated Feb. 8, 2015 7:28 p.m. ET

Central-bank moves world-wide have helped push up the U.S. dollar, complicating life for the Federal Reserve, above. Central-bank moves world-wide have helped push up the U.S. dollar, complicating life for the Federal Reserve, above. Photo: Bloomberg News


The central-bank stimulus spree of 2015 has the look of a global currency war. In quick succession, countries representing about a third of the world’s economic output—from the eurozone to China, Australia and Canada—have taken steps that have driven down the value of their currencies.

But if it’s a war, it’s a gentle one so far.

Half the central banks representing the Group of 20 developed and large emerging economies, whose top monetary and finance officials meet to discuss the global economy this week in Istanbul, have taken easing steps so far this year.

The moves—mainly in the form of interest-rate cuts but also asset purchases—have ricocheted through foreign-exchange markets, driving the currencies of some countries down and those of others, primarily the U.S., up. That helps the economies of countries that are easing while complicating life for some central banks, such as the Federal Reserve, and creating challenges for exporters, from the U.S. to Switzerland and Denmark.

“There is a growing consensus in the market that an unspoken currency war has broken out,” David Woo and Vadim Iaralov at Bank of America Merrill Lynch said in a note to clients, noting that the magnitude of currency-market swings this year has hit its highest noncrisis level in 20 years.

Mention of currency war evokes images of countries deliberately trying to force their currencies down to boost exports and curb imports at their neighbors’ expense. By definition, it’s a zero-sum game.

This is a bit different: Central banks by and large aren’t specifically aiming to achieve a certain—weak—exchange rate, for instance by buying up foreign currencies on the open market, as in currency wars of the past. They are doing what they think is best for their economies and, if their currencies weaken in response, so much the better.


                                                                     
With the possible exception of Switzerland, whose economy may be rattled by the sudden surge in the franc after the country’s central bank unexpectedly dropped its currency ceiling against the euro last month, there aren’t any clear victims yet.

Indeed, there’s a positive-sum aspect to these currency wars. As one central bank eases, others are forced to follow suit to offset the upward pressure on their currencies.

Unlike past easy-money campaigns, these latest efforts—from economies totaling about $36 trillion in annual output—aren’t aimed at addressing financial crises, as with the U.S.-led global effort six years ago. Rather, central banks are taking aim at the risks of too-low inflation and weak economic growth.

The frenzy of easing policies began in Europe, once a center of conservative central banking with Germany’s Bundesbank at its core. The European Central Bank announced a bond-buying program, mostly government debt, last month that could swell beyond €1 trillion (about $1.13 trillion) by the fall of 2016.

That sent a tidal wave through the continent. Switzerland responded before the program was even announced last month by abandoning the ceiling it had set on the franc’s level against the euro, as markets widely anticipated the ECB’s move, while Denmark slashed interest rates four times in three weeks. Switzerland and Denmark also accumulated massive amounts of foreign currencies last month to keep a lid on their currencies’ strength. Sweden and Poland might cut rates in coming weeks, analysts say, and the Czech central bank has said it is ready to take steps to keep its currency weak against the euro.

Europeans have turned the common-sense idea that official interest rates can go only so low on its head. Deposit rates on bank reserves set by the Swiss and Danish central banks are each at -0.75%.

The ECB also has a negative deposit rate, at -0.2%, which means banks must pay a fee to park excess cash with their central bank.

“We are sort of testing the limits,” said Ángel Ubide, senior fellow at the Peterson Institute for International Economics.

These policies have brought bond yields to rock-bottom levels and pushed equities higher. The hope is that all this global easing will bolster global demand.

But there are doubts as to how much more stimulus officials can get from asset markets.

That leaves currencies as the main transmission channel. In an era of weak global growth and very low inflation, central bankers can take aggressive currency-weakening measures such as printing money or pushing rates into negative territory without having to worry about any inflationary consequences.

That makes exports cheaper in economies with looser monetary policies, and more expensive in those that are holding the line. Even if recent measures haven’t been directly aimed at currencies, “the impact of domestically oriented policies naturally has an impact on the exchange rate,” said Hung Tran, managing director at the Institute of International Finance.

The U.S. is already seeing the negative effects of a stronger dollar, with trade slicing one percentage point from fourth-quarter growth. Still, its economy is cranking out jobs at a rapid pace.

With Europe still wrestling with stagnation and political turmoil in Greece, and growth softening in key emerging markets such as China, the pressure on central banks will likely remain intense.


—Tommy Stubbington contributed to this article.

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