For the first time since March 2008, PBOC fixed the yuan weaker than 7 per USD....
Let me conclude that while I agree with Dean that lowering the value of the dollar may will certainly tend to increase the quantity of exports and lower the quantity of imports as well as tend therefore to increase employment somewhat, this does not mean that I necessarily support a "talking down the dollar" policy. One obvious problem, mentioned by Summers, is that a too obvious and aggressive such nationalist policy is likely to call forth retaliation from other nations, just as an aggressively protectionist policy is likely to do. They will start talking down their currencies and perhaps engage in more direct policies to lower their values, which can easily end up in a "beggar thy neighbor" war as described by Joan Robinson in 1937. More often than not a wiser policy for a TeasSec is not to push either a strong or weak currency policy and just keep quiet, just as such a policy is often best for central bankers as well, even though the TreasSec is "in charge" of the dollar. Sometimes asserting that authority is nothing more than a pointless macho exercise.Econospeak
European Central Bank chief Mario Draghi took a swipe at Washington on Thursday for talking down the dollar, a move he said threatened a decades-old pact not to target the currency and might force his bank to change its own policy.Reuters
When the US embarks on perennial quantitative easing, that's OK. When the EU does QE as well, that's OK. But when the Bank of China decides it's in the best interest of the nation to let the yuan go down a bit instead of infinitely up, that's Armageddon.
It took the Bank of China to devaluate the yuan on two consecutive days — moving within the 2 percent band that it's allowed to — for the proverbial global financial banshees to go completely bonkers.
Forget the hysteria. The heart of the matter is that Beijing has stepped on the gas in a quite complex long game; to liberalize the yuan exchange rate; allow it to free float against the US dollar; and establish the yuan as a global reserve currency.
So this is essentially exchange rate policy liberalization — not a currency "war", as the frenetic spin goes from Washington/Wall Street to Tokyo via London and Brussels.Sputnik
Whatever the words from the ECB, quantitative easing was all about lowering the exchange rate of the euro. Why? Because aggregate demand falls short in the euro zone, way short. With 11% unemployment – now rising again – and an increase in government spending taboo, mostly because of German policy makers not understanding the fundamental importance of the role of demand, government spending and the monetary circuit, Draghi has tried to provide some help in the form of a lower euro. He also proved that the ECB buying up sovereign bonds does not lead to hyperinflation, by the way. As I have commented before, the euro zone is too big to be able to devalue itself out of a demand problem.
So, it was no surprise that China – which fixes its RMB against the USD – started to experience problems.…
The Chinese authorities reacted today and devalued the RMB by 2% against the USD….
The euro zone, by trying to beggar their neighbors – US and China, which form a dollar zone [with China's dollar peg] that has been doing much better than the euro zone – has triggered a currency war. In a world economy with insufficient demand, all countries try to secure market shares for their exporters by lowering the nominal exchange rate. This, obviously, is a zero sum game…econoblog 101
From a technical point of view, the Russian ruble's drop to more than 40 per U.S. dollar, a full 17 percent weaker than at the start of the year, is an expected result of Russian companies being cut off from Western financial markets and a drop in the price of oil.
On a different level, however, the ruble's downward journey reflects the economic structure that makes it possible for President Vladimir Putin to remain popular. The government isn't interested in defending the ruble, because a weak currency benefits the resource exporters who are the main source of revenues for the Russian government. The price inflation that results amounts to a tax on ordinary citizens to fundPutin's aggressive policies, yet these people are a less important constituency in Russia. And, for now at least, they are happy to pay for the country's international resurgence, such as it is.Bloomberg View
