October 13th, 2010
04:13 AM GMT
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(CNN) – Brazilian Finance Minister Guido Mantega said the words that launched a thousand headlines last month, uttering the phrase that now defines the latest phase in the post-financial crisis world:

“We’re in the midst of an international currency war.”

He had said out loud what was murmured across economies worldwide, as Japan jumped to intervene against its rising currency and the chorus of complaints against the value of China’s yuan grew to a roar. Other economies, such as Taiwan, South Korea and Thailand, also have taken moves to influence the value of their currencies.

Speaking to CNN’s Maggie Lake, Mantega said he is hoping an international accord could mitigate the growing currency exchange rate rancor.

“I don’t think the United States the Europeans have their hands tied, I think they can do something more with fiscal policy,” Mantega said, to avert protectionism – of which the current currency interventions are a symptom. “Beggar thy neighbor is not a good policy.”

Mantega hopes that the Group of 20 summit in Seoul in November can map out “the beginning of an accord” on global currencies, much like the 1985 Plaza Accord – when the U.S., Japan, France, the U.K. and West Germany agreed to jointly intervene in the global currency markets to push the U.S. dollar down against the Deutsch Mark and Japanese yen.

This may be a bitter pill to swallow for Beijing. Some point to the Plaza Accord – which doubled the value of the yen in 30 months – as a needle that eventually pricked Japan’s economic bubble. It also raises a question raised by Prof. Chak Wong on World Business Today: Would a currency agreement alleviate global trade imbalances?



soundoff (10 Responses)
  1. Steve Thompson

    WIth China sitting on foreign reserves of $2.45 trillion and very little central government debt, it will be interesting to see how much heed they pay to admonitions by Japan, the US and the UK to allow the yuan to appreciate, especially in light of the fact that these already heavily indebted nations are having to pile on more stimulus debt in vague attempts to keep the Great Recession from roaring back.

    Here's a brief look at China's foreign reserve and debt situation:

    http://viableopposition.blogspot.com/2010/10/china-and-their-gigantic-pile-of-paper.html

    October 13, 2010 at 11:47 am |
  2. Shota

    Love Maggie Lake!!!

    Back to the topic:

    While everyone is trying to depreciate currencies no one is talking about the people who have saved money and who lose value of their investments on a daily basis. Few people can afford buying gold and that way saving their cash investments.

    World leaders need to understand that not everything is about cheap currency and increased exports. Purchasing power of their constituents has to be considered, as well. They need to learn how to deal with financial crisis with a new approach that has not been written for them, but the one they should have learned on the job.

    If every country that faces financial challenges depreciates its currency at the same time then what's the purpose of the CURRENCY AGREEMENT? Do they really think that appreciated yuan is the medicine to their troubles?

    Let's be realistic! China is not going to be importing goods from all of those countries who are in financial difficulties. Why? Because there are too many countries in trouble and only few of them can create competitive products for Chinese market.

    Shota
    http://www.ranxem.com

    October 13, 2010 at 9:22 pm |
  3. BSTeh, Kuala Lumpur, Malaysia

    It is somewhat telling that the countries named for currency intervention are all from Asia i.e. China, Japan, Thailand, Korea and Taiwan. Coincidentally, all these countries had witnessed or experienced the withering effects of the 1996 Asian meltdown when the regional currencies came under a slew of attacks.

    The untold hardships resulting from waves of corporate and business failures, basement sale of valuable assets, declining and uncertain business environment, massive unemployment and insolvencies reduced Asian Tigers to Asian Pussycats as one foreign banker derisively announced in a public function.

    These negative consequences were generally claimed to have been exacerbated by the harsh control and measures imposed by the IMF. Malaysia narrowly escaped its clutches despite the acquiescence of its soon to be discredited Deputy Prime Minister who was overruled by an adamant Mahathir.

    Years later, the IMF admitted that Mahathir's monetary policies were correct. He had lessened the sufferings of his people and kept the country's vital economic assets intact until the worse of the meltdown was over.

    The lack of social and political upheavals in Asia can be attributed to the cooperativeness of its labour organisations, the cohesiveness and resilience of its societies, the general apathy towards dependence on the state.

    How the Plaza Accord has impacted Japan is best figured out by their economic experts but what is important is that the piercing of the Japanese bubble should not be repeated to no good purpose. China is the biggest trading partner to many economies and its political stability and continued economic growth will have the biggest repercussions on practically all the world's economies for their own economic health and growth and social and political stability.

    That is not to say that the world's economies under the guidance of the IMF should not take concerted efforts to stabilise an already volatile global economic situation. What is more important is the understanding that short term monetary measures cannot solve long term structural economic weaknesses.

    Not everyone agrees that the strengthening of the RMB will reduce imports of Chinese products and increase US exports to China thus reducing trade imbalance and create employment in the US. The fundamental issues are the productivity and cost-benefit co-efficiency of the American labour force and the structural nature of the US economy.

    Why are American Corporations shifting production overseas? Why are domestic American companies outsourcing services from non American service providers? Why is there a mismatch between jobs and job seekers in the US? Why does the US have so much problems creating jobs when their economy is three times larger than its nearest competitor?

    Can the revaluation of the RMB resolve all these issues?

    October 14, 2010 at 3:21 am |
  4. Oladipo Akinyemi Omole, Lagos, Nigeria

    Maggie darling,
    The time is ripe and the subject quite apposite.A uniform exchange rate is long overdue, a standard currency regime,if you will, to eliminate problems associated with international payments and receipts.Let the whole world adopt the US Dollar,the Pound Sterling, Euro,the Yen and the Deutchmark as standard mediums of exchange.That would do a lot in eliminating fluctuations and losses associated with the plethora of currencies in the world whose values and validity are determine largely by sentiments.Nationalism and nothing more.The problem is real.Multinationals lose money...tremendous amounts of money when they're trying to repatriate profits from their operations in less developed economies whose currencies are not standard , but are only supported by sentiment.
    It would do a lot to facilitate international payments and receipts , if the November G20 Summit at Seoul considers these issues.
    P.S: Maggie Darling, I'm trying to obtain a US Work/Residency Permit through Migration Experts Ltd and I hope and pray that exchange controls don't frustrate me. I love you darling. Always. And thanks for acknowledging my mails to you on Facebook.I was really encouraged and thrilled.
    Much love,
    It's me,
    Oladipo Akinyemi Omole

    October 18, 2010 at 5:31 pm |
  5. vkmo

    Price of gold hit $1370 per ounce today, in year 2000 it was below $300 per ounce. Thanks to the gold mines in Tibet which China annexed, it is the largest producer of gold in the world today, see http://in.answers.yahoo.com/question/index?qid=20080628014853AAnDDwK . China doesn't need the added benefit of a fixed fraudulent currency rate to boost its economy. The current regime illegally occupied Tibet for its minerals and timber, fixed an unfair Yuan currency rate to gain in trade and in addition practices copyright, patent and other trade violations for economic gain. Japan, USA and UK are not the only nations hurt by China, most nations are suffering. The world's nations should stand up to China.

    October 19, 2010 at 11:18 pm |
  6. real marketing magic

    I completely disagree with some of the above comments. I have spent much time in Asia and lately I have notice the majority of the Asian countries are doing a lot better than the western countries. Infrastructure is the key to any country and many of the Asian countries are still developing regardless of the financial issues faced by the west. It is simply not enough that western countries only develop/redevelop on this level during time of crisis to try to keep the money at home.
    Unified currencies are great for countries that don't perform and are detrimental to countries that do. Look at Europe, Italy, Greece etc. they are a burden on the EC and will continue to be so.
    Some should ask the question why the federal reserves world wide try to sell there Gold reserves a few years back. Money has always been based on a physical commodity and I think that people don't really understand the relation between Gold and Currency.
    China for the record, don't need to trade with the outside world but they do so because it is easier money for them. I think the problem lies much closer to home in the fact that individual countries have become efficient off the backs of there neighbors and neglected to look after themselves and that is how they end up in trouble.
    Such as Australia, in 1987 the Coal industry went down and again in 1991. There biggest export was Japan, years later it is China. The Cola industry is booming again but for how long. China has more coal than Australia and they are now beginning to develop their own reserves. So knowing that why doesn't Australia rethink the policy, because it would hurt to think that far ahead. Stupidity is unacceptable from any government. Yet as single people who condone it and accept what we are told. Go Figure.

    http://realmarektingmagic.info

    January 25, 2011 at 6:19 am |
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