Why other countries are frantic about currency appreciation

[Jovial Monk]

This ties in a bit with China, FD:

The value of a dollar

Everyone is worried about exchange rates except Australia.

It has been a week since Brazil's finance minister, Guido Mantega, declared that we are in the midst of an international currency war and that Brazil was joining in to try to keep its currency from appreciating further.

That led foreign exchange traders to immediately bet $US14 billion that the Brazilian real will, in fact, keep rising.

Meanwhile central banks and governments in Japan, Colombia, Thailand, Poland, Taiwan, Russia, Peru, Mexico, Korea, South Africa are now either intervening directly in foreign exchange markets to try to force their currencies down, or talking about it.

China, of course, intervenes simply and directly by pegging the yuan to the dollar. American authorities are effectively intervening by holding interest rates at zero and talking about printing more money.

Everyone is worried about exchange rates except Australia. The Australian dollar has appreciated 50 per cent since March 2009 and 20 per cent since June this year and is this morning sitting comfortably above 97 US cents, but there has not been a peep from either politicians or central bankers.

Australia is an island of laissez-faire calm in a frothing sea of competitive devaluation. Why? Because we have neither a demand deficit nor high unemployment.

As 12-year Reserve Bank staffer and now HSBC's Australian economist, Paul Bloxham, said in my interview with him on Inside Business yesterday, the RBA likes the appreciation of the Australian dollar because it helps reduce inflation.

"Increasing interest rates is hard work. If the exchange rate does some of the work for you in terms of slowing some parts of the economy down, I think that's regarded as a good thing."

And Australia's politicians are kept quiet by low unemployment. Brazil's unemployment rate has fallen steadily from 12 per cent in 2004, but it is still an uncomfortable 7.4 per cent.

The world is finding that without rampant credit growth, through which demand is borrowed from the future, it is very difficult to create enough work for people supplying domestic markets. For China make that rampant exports, supported by rampant credit growth in the US.

As a result, the economic crisis that began with the credit collapse of 2007 is entering a new phase in which countries are trying to steal demand and employment from each other, instead of from the future as they did before.

Martin Wolf wrote in the Financial Times and Business Spectator last week that as a result of the crisis developed countries are suffering from chronically deficient demand.

"US, Japan, Germany, France, the UK and Italy... are now operating at up to 10 per cent below their past trends."

Those countries are now trying to use the demand of other countries to make up the gap through exports.

http://www.abc.net.au/news/stories/2010 ... te=thedrum

[J.W. Frogen]

The US is printing so much money that soon you will not even legally be able to use it to play Monopoly.

[Jovial Monk]

Considering the shit they are in printing money is a good thing to do!

[TomB]

The US is printing so much money that soon you will not even legally be able to use it to play Monopoly.

When it's down there with the Zimbabwean dollar (defunct) I'll worry about it's value (I won't really coz we'll be using yuan by then)

[TomB]

Anyone got a Z$100 billion banknote for sale? I'll swap it for a Dingo's breakfast.