Possible 'currency war' to hamper int'l economy recovery
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"Currency war" destroys world economic and financial stability
If a real "currency war" breaks out, it will seriously affect global economic and financial stability.
If the Fed continues to "print money" in the world's largest economy, it will lead to excess liquidity, deprecation of the dollar, and finally serious speculation of hot money.
The typical result is like this: if governments do not intervene in the market, a massive influx of dollars as hot money will generate new bubbles in stock and real estate markets of emerging and developing economies. And if the governments mop up the hot money by "printing money", inflation is likely.
Depreciation of the dollar may also cause commodity prices to surge. Situations like soaring oil prices and food crises will return. More importantly, if all nations adopt the foreign exchange policy of "beggar thy neighbor", the global economy will face a severe challenge.
During the 1930s economic crisis, many major economies abandoned the gold standard and devaluated their currencies, which led to protectionism and further harmed the economic recovery. It is a painful lesson.
China should be wary not to be smeared
Currently a few western media are trying to distort the cause of and solution to the "currency war" and China is in danger of being discredited.
As previously mentioned, the real cause of the "currency war" is the U.S. politicians' electioneering and money printing by the Fed. Still, some American politicians and a few Western media not only distort the truth, but also press China to take the responsibility or even discredit China.
Some people even proposed that as a "responsible stake holder," China should accelerate the appreciation of RMB to avoid the outbreak of a "currency war."
As an old Chinese saying goes, he who ties unties. The RMB exchange rate is not the main cause. Instead, if the RMB appreciates too fast, it will only do harm to China's economy and further hurt the global economic recovery.
Even a large appreciation of the RMB will not solve the problem. Other emerging and developing economies will continue to face pressure to intervene as their currencies appreciate in the face of the Fed's "money printing" policy.
Int'l community should cooperate to tackle problem
To avoid a "currency war," all nations should learn from the lessons of the 1930s Great Depression and cooperate with each other.
At the beginning of the outbreak of the financial crisis, the international community worked together, which was encouraging.
As the world economy underwent sustainable recovery, the situation began to shift. Trade protectionism rose and divisions emerged over macro-economic policies such as exchange rates, financial regulation and reform of international financial organizations.
People now doubt whether the international community can make joint efforts to solve the difficulties.
While the world moves towards a sustainable recovery, there remain many potential risks and challenges, so it is urgent for the international community to beef up policy coordination.
In addition, the threat of a "currency war" highlights the dilemma of the current global currency system. As a sovereign currency, the U.S. dollar also functions as the world's main reserve currency. Unfortunately, the two functions are contradictory. To stimulate its economy, the Fed resorts to printing more money, which may cause excess liquidity and depreciation of the dollar, further affecting international financial stability. A new international monetary system is urgently needed.
