The meeting of the Group of 20 has failed to find some common ground on the subject currency problems, resulting in a request to the IMF to lend a hand. Despite the race to the bottom being conducted by most of the governments involved, as evidenced by Japan's intervention this week, the blame appears to be laid at China's door for the woeful state that Finance Ministers find themselves in.
The following is a snippet from Bloomberg:
Leaders of the world economy failed to narrow differences over currencies as they turned to the International Monetary Fund to calm frictions that are already sparking protectionism.
Exchange rates dominated the IMF’s annual meeting in Washington on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. China was accused of undervaluing the yuan, while low interest rates in the U.S. and other rich nations were blamed for flooding emerging markets with capital.
Finance ministers and central bankers pledged to improve cooperation, yet did little to show how they would alter their ways beyond agreeing to let the IMF to study the matter. With the dollar down 11 percent against the yen since mid-June, compared with less than 3 percent versus the Chinese yuan, the focus turns to Group of 20 talks in South Korea in coming weeks to prove international policymaking isn’t in tatters.
“Policy makers seemed to be trying to diminish concerns about currency wars,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “There did not seem any commitment to change behavior, however. There is little to suggest that the dollar’s direction is anything but down.”
So there we have it, just as we imagined, the dollar will continue to head south which in turn is good for gold prices when compared to the dollar. However, it is hard to see how this issue will resolve itself as each individual Finance Minister has his own future on the line and so needs the perceived short term boost of a devalued currency for the country he or she represents.
The danger now is the imposition of import taxes and tariffs in order to level the playing field.
Protectionism does a lot more than that and is something to be fearful of.
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