Currency war warnings follow US Fed’s “quantitative easing”
By Nick Beams
September 24, 2012
There are growing fears that the US Federal Reserve’s policy of “quantitative easing”—the process by which tens of billions of dollars are pumped into financial markets every month—is sparking international tensions over currency values.
One of the consequences of the Fed’s actions is to push down the value of the US dollar, thus worsening the competitive position of other major countries in international markets.
Following the latest decision, in which the Fed gave an indefinite commitment to purchase mortgage-backed securities to the tune of $40 billion per month, the Brazilian finance minister, Guido Mantega, repeated his earlier warnings of a currency war.
Interviewed by the Financial Times last Thursday, Mantega said the US move was “protectionist” and could have drastic consequences for the rest of the world. “It has to be understood that there are consequences,” he told the newspaper. The Fed’s latest move would have only marginal benefits, he said. There was already plenty of liquidity in the economy but it was not going into production. The real purpose of the measures was to depress the value of the dollar and boost US exports, he added.
Mantega pointed to last week’s decision by the Bank of Japan (BoJ) to intervene in financial markets with its own version of quantitative easing as another sign of global tensions. “That’s a currency war,” he said.