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Are currency wars about to resurface?
20 February 2013
With tensions mounting, investors should hope for a truce in the global currency war, says Peter Garnham
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currency
QE
monetary easing
capital controls
The year began with a currency war looming, and investors should be wary of escalating hostilities. After all, by definition currency intervention increases inefficiencies in the global economy and, in the extreme, has the potential to throw the world into a damaging era of protectionism and trade wars.
It is over two years since the Brazilian finance minister Guido Mantega broke the taboo and declared that aggressive monetary easing in the developed world had unleashed a global currency war.
Prior to the financial crisis, global currency tensions focused on China. The widespread belief was that Bejing was keeping the value of the renminbi artificially low to boost its export sector. The collapse of Lehman Brothers and the ensuing flood of liquidity changed all that.
Indeed, Mantega’s comments came in the wake of a rise in risk appetite following the Federal Reserve’s second round of quantitative easing in the autumn of...
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