what happens if one country devalues its currency?

I got this from Bloomberg, via Fullermoney.

G-20 Advocates Market-Set Currencies as Japan Defends Policy – This is an interesting and certainly topical article from Bloomberg. Here is the opening:

Group of 20 finance chiefs are planning to disavow competitive devaluations in a statement to be released after talks end in Moscow tomorrow, according to an official from a G-20 nation.

The latest draft of the group’s communique doesn’t repeat this week’s pledge by the Group of Seven to avoid using exchange rates as a goal of policy, said the official, who asked not to be identified because the document isn’t public. It will instead echo language adopted by the G-20 in November, which urges currencies to be set by financial markets.

The G-20’s finance ministers and central bankers are trying to find common ground after the G-7 this week sought to avoid a so-called currency war by uniting around a commitment not to target exchange rates — only to then divide over whether the statement signaled irritation with Japan.

“All members of the G-20 need to deliver on the commitment to move towards market-determined exchange rates,” U.S. Treasury Undersecretary Lael Brainard said at a conference in Moscow today. “G-20 members will have to bring their exchange frameworks into alignment so that we grow together and avoid a downward spiral of beggar thy neighbor policies.”

Bank of Japan Governor Masaaki Shirakawa today defended his nation’s economic strategy, arguing it is aimed at beating 15 years of deflation and not at driving down the yen.

My view – While we have yet to see G-20’s final statement on currency devaluations, which is scheduled for release tomorrow, the preliminary discussions suggest that it will be somewhat opaque and therefore subject to interpretation. If so, it would offer enough wiggle room to avoid condemnation of devaluations seen within G-20 in recent years.

I’m reading this as they’ve all been buying each other’s debt (the banks taking a cut at each sale) and providing an excuse to demand austerity measures, thus justifying the sale of state assets and pauperising the plebs. If one devalues, it will immediately leave their creditors without the means of paying their own creditor’s. So they’re all a little nervous, like participants in a game of musical chairs.

I don’t think other countries have need to worry. I don’t kno who’s likely to break ranks first (my money is on Greece, after returning to the Drachma). I suspect that Britain will be the last to duck out and the Etonians will leave us in the mire.

It’s OK. I’m probably way off beam and just being overly paranoid.




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