Author`s name Dmitry Sudakov

World being dragged into swamp of currency wars

Experts predict a new world war, only this war will be a war of currencies. The threat was first announced by deputy chairman of the Bank of Russia Alexei Ulyukayev on the opening day of Gaidar Forum 2013. According to him, despite the fact that the system of central banks is generally effective, some imprudent actions of individual actors may seriously destabilize the situation.

Nearly the entire banking community agrees with Ulyukayev. Its representatives have been continually reminding of the importance of not disturbing the existing order and balance. However, the reactionary behavior of banks, and first of all, central banks, does not please those who set out to break the unbreakable financial dogma. If the existing order does not address the existing problems, it has to be changed.

Japan came to the forefront of reforms. On December 26th, 2012, the country welcomed its 96th Prime Minister Shinzo Abe, who in his short time in office very clearly demonstrated that the new course of his administration would be tough. Abe held office as the Japanese Prime Minister from September 26th of 2006 to September 26th of 2007. Then he was forced to resign after a financial scandal that resulted in a suicide of Agriculture Minister Toshikatsu Matsuoka. Abe is the chairman of the Liberal Democratic Party of Japan. He is the youngest prime minister in the country's history, which may explain his desire for renewal and reformation of the stale system.

Once it became clear that Shinzo Abe will be the head of state, the yen began plummeting. Over one month the currency lost seven percent of its value. However, the Japanese government was not only not disappointed, but rather, inspired. The Prime Minister planned to achieve two-percent inflation. Even before his appointment Abe promised that he would print money until he reaches his goal. The main task of the government is to stop the strengthening of the yen, which in recent years has increased in value by 60 percent.

The unusual to the Russian ear aspirations are, in fact, an objective need for Japan. The country's economy is almost entirely dependent on exports, and that, in turn, depends on the rate of the national currency. The stronger is the yen, the higher is the cost of Japanese goods. The higher is the cost of Japanese goods, the more expensive they are for foreign buyers. The more expensive they are for foreign buyers, the less they buy. The less they buy, the less Japan produces. This reduces industrial output and generates unemployment.

The current situation in the country is quite alarming, and the new Prime Minister began to take drastic measures. The Japanese central bank acted against the policy of Shinzo Abe, but in response the latter simply threatened to put the issue of independence of the central bank to a referendum. The Central Bank immediately stopped criticizing the policy of the Prime Minister, and Abe made a statement that the Government and the Bank of Japan created new mechanisms of interaction.

Such policies currently exist in some European countries, although they are softer. The New York Times columnist, Nobel Prize-winning economist Paul Krugman wrote that for three years, the economic policy in the developed world had been paralyzed despite high levels of unemployment. Each proposal of measures to create jobs is blocked by warnings about dire consequences. Serious people stubbornly scare everyone with inflation, saying that typing more money would cause a rise in inflation. It turns out that there is nothing to do, simply because nothing can be done. Alexei Ulyukayev called this policy counterproductive. "This is not the way to unity, but the way to separation, segregation, division into zones of influence, up to very intense competition, up to world trade and currency wars," he added.

Last time the outbreak of currency wars was feared by the international community in 2010, due to the policies pursued by China and Brazil. That situation had a lot in common with the current state of affairs.

Anastasia Garina


Read the original in Russian 

Subscribe to Pravda.Ru Telegram channel, Facebook, Twitter, YouTube, RSS!