What is Currency War- A primer -30.04.16
•Transferir como PPT, PDF•
10 gostaram•4,716 visualizações
A currency war refers to a situation where a number of nations seek to deliberately depreciate the value of their domestic currencies in order to stimulate their economies. In this presentation we discuss the basic aspects, features of currency war, currency devaluation. We also cover the impact of currency war of affluent nations on Indian economy
Recomendados
Mais conteúdo relacionado
Mais procurados
Mais procurados (20)
Destaque
Destaque (14)
Semelhante a What is Currency War- A primer -30.04.16
Semelhante a What is Currency War- A primer -30.04.16 (20)
Último
Último (20)
What is Currency War- A primer -30.04.16
- 1. by Dr. Akhilesh Tripathi Currency WarCurrency War National Seminar on Global Economic Outlook :National Seminar on Global Economic Outlook : Resilience & Sustainability of Indian EconomyResilience & Sustainability of Indian Economy Organised byOrganised by School of Management –Poornima UniversitySchool of Management –Poornima University April 30, 2016April 30, 2016 Sharing of Thoughts on
- 2. Currency WarCurrency War • Cold War • War on Terror • Currency War
- 3. Currency WarCurrency War In its financial stability report, published on December 23, 2015, India's Financial Stability and Development Council (FSDC) pointed out that developments in China and the dilemma of the US Federal Reserve on its interest rates, along with competitive quantitative monetary easing policies of central banks across the world, might trigger a currency war.
- 4. What Is A Currency War And HowWhat Is A Currency War And How Does It Work?Does It Work? A currency war refers to a situation where a number of nations seek to deliberately depreciate the value of their domestic currencies in order to stimulate their economies.
- 5. Currency WarCurrency War Currency War- manipulation of currencies to boost exports. Currency War - competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency.
- 6. What Is A Currency War And HowWhat Is A Currency War And How Does It Work?Does It Work? Although currency depreciation or devaluation is a common occurrence in the foreign exchange market, the hallmark of a currency war is the significant number of nations that may be simultaneously engaged in attempts to devalue their currency at the same time.
- 7. Currency WarCurrency War Currency War – term first introduced by Guido Mantega, the finance minister of Brazil. A lower value for the home currency will raise the price for imports while making exports cheaper. It significantly increase risks for cross-border trade and investment
- 8. Currency War- WhyCurrency War- Why Two nations use their currency as a weapon to fight their war Direct or Legal Indirect or Illegal
- 9. Currency WarCurrency War Direct or LegalDirect or Legal Direct war is when one country devaluates its currency or appreciate its currency. The move is intended to bolster exports and making goods cheaper to purchase abroad
- 10. Currency WarCurrency War Indirect or IllegalIndirect or Illegal Indirect wars are fought by printing fake currencies of that nation Or artificial trading and devaluation of a currency by using illegal trading means
- 11. Currency War- WhyCurrency War- Why Indirect or IllegalIndirect or Illegal Indirect wars are fought by printing fake currencies of that nation Or artificial trading and devaluation of a currency by using illegal trading means
- 12. Currency War-How it is doneCurrency War-How it is done A country reduces the value of its currency in an effort to boost competitiveness by stimulating exports and economic growth It makes its products cheaper on world markets
- 13. Currency War-How it is doneCurrency War-How it is done A currency war is initiated primarily by advanced economies. The developing countries, which do not have much clout in the global economy normally dodge the bullet.
- 14. Currency War-How it is doneCurrency War-How it is done Affluent Country use its currency as an indirect monetary tool to achieve its domestic goals. Developing countries, which are highly dependent on portfolio inflows to manage their current account deficit, suffer as a result of this.
- 15. Currency War-How it is doneCurrency War-How it is done China intervenes directly to depreciate or devalue its currency through peg adjustment (the central bank sets a parity rate and allows it to rise or fall by 2 per cent from the mid-point on each trading day)
- 16. Currency War-How it is doneCurrency War-How it is done European Central Bank, Japan's central bank and US Federal Reserve do it through rate adjustments and liquidity management.
- 17. Currency War-How it is doneCurrency War-How it is done Currencies of these countries are then used for carry trades in high yielding developing economies, and are withdrawn promptly when winds turn adverse
- 18. Currency WarCurrency War SOURCE: BLOOMBERG NEWS
- 19. Currency War – Need for DevaluationCurrency War – Need for Devaluation • Correcting the price distortions. • To increase competitiveness in foreign market. • To raise national income per capita • Close the development gap. • Restriction on commodity as well as capital flows.
- 20. Currency War – Impact of DevaluationCurrency War – Impact of Devaluation • Improve trade balance • Alleviate balance of payment difficulties. • Accordingly expand output and employment.
- 21. Currency War – Impact of DevaluationCurrency War – Impact of Devaluation A weak currency increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- 22. Currency War – Why Depreciate a CurrencyCurrency War – Why Depreciate a Currency Strong Currency Vs. Weak Currency A weak domestic currency makes a nation's exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products.
- 23. Currency War – Why Depreciate a CurrencyCurrency War – Why Depreciate a Currency Generally translates into a lower current account deficit (or a greater current account surplus), higher employment, and faster GDP growth. Weak currency also have a positive impact on the nation's capital and housing markets, which in turn boosts domestic consumption through the wealth effect
- 24. Currency War – ReasonsCurrency War – Reasons Beggar Thy Neighbor: When nation A devalues its currency, nation B will soon follow suit, followed by nation C, and so on. This is the essence of competitive devaluation.
- 25. Currency War – ReasonsCurrency War – Reasons Economic growth in most regions has been below historical norms in recent years; many experts attribute this sub-par growth to the fallout of the Great Recession.
- 26. Currency War – ReasonsCurrency War – Reasons Most nations have exhausted all options to stimulate growth, given that interest rates in numerous countries are already either near zero or at historic lows. With no further rate cuts possible and fiscal stimulus not an option (as fiscal deficits have come under intense scrutiny in recent years), currency depreciation is the only tool remaining to boost economic growth.
- 27. Currency War – Impact of DevaluationCurrency War – Impact of Devaluation Bad for investors Any depreciation of the rupee, however, is bad for foreign investors.
- 28. Currency War – Negative EffectsCurrency War – Negative Effects Currency devaluation may lower productivity in the long-term, since imports of capital equipment and machinery become too expensive for local businesses. If currency depreciation is not accompanied by genuine structural reforms, productivity will eventually suffer.
- 29. Currency War – Negative EffectsCurrency War – Negative Effects The degree of currency depreciation may be greater than what is desired, which may eventually cause rising inflation and capital outflows.
- 30. Currency War – Negative EffectsCurrency War – Negative Effects A currency war may lead to greater protectionism and the erecting of trade barriers, which would impede global trade.
- 31. Currency War – Negative EffectsCurrency War – Negative Effects Competitive devaluation may cause an increase in currency volatility, which in turn would lead to higher hedging costs for companies and possibly deter foreign investment.
- 32. Currency War – Need for DevaluationCurrency War – Need for Devaluation • Overvaluation of currency associated with import substitution for industrialization as opposed to export promotion policies. • The risk of losing competitiveness. • To relieve an unfavorable balance of trade. • Economic stabilization.
- 33. Currency War – Impact ofCurrency War – Impact of Yuan DevaluationYuan Devaluation Rupee volatility: If the rupee continues to fall sharply, imports will become costlier, stoking inflation RBI will be forced to hold on to high interest rates- which will hamper the ongoing economic recovery.
- 34. Currency War – Impact ofCurrency War – Impact of Yuan DevaluationYuan Devaluation Rupee volatility: India runs a trade deficit (imports are more than exports), current account deficit will also rise, which will further pressure the rupee. Falling rupee is bad for companies that have dollar-denominated loans and also for foreign flows because stock market returns become unattractive.
- 35. Currency War – Impact ofCurrency War – Impact of Yuan DevaluationYuan Devaluation Pressure on Exports: Domestic Exports and Global Slowdown. India and China compete for several export items - textiles, gems and jewellery, etc. Economic slowdown in China - which is among the top five countries for Indian exports - is another negative for Indian exporters
- 36. Currency War – Impact ofCurrency War – Impact of Yuan DevaluationYuan Devaluation Dumping of Chinese goods: Sharp devaluation in Yuan will help China dump goods into the Indian market Impact domestic manufacturers Market will react E.g. Tyre stocks Steel makers
- 37. Currency War – Why India will notCurrency War – Why India will not follow the suitfollow the suit High Inflation Foreign capital flows High Cost Of Capital Ease of doing business in India Focus On Innovation
- 38. Currency War – India’s PreparednessCurrency War – India’s Preparedness Foreign exchange reserves - $352 billion, enough to cover 10 months of imports. One of the most favoured nations among global investors because of its strong macro-economic fundamentals.
- 39. Currency War – India’s PreparednessCurrency War – India’s Preparedness Prices to rise only about 4 per cent yearly in the medium term Fiscal deficit below 4 per cent of the gross domestic product (GDP) Current account deficit is only about 1.2 per cent of the GDP.
- 40. Currency War – India’s PreparednessCurrency War – India’s Preparedness Political certainty in the country Oil prices have remained soft Foreign direct investment is positive – Upto September, the FDI inflow was $26.52 billion, up 18 per cent from the same period last year.
- 41. Weaker Currency Good Or BadWeaker Currency Good Or Bad A weaker currency can help an economy by potentially boosting exports, jobs and inflation, as well as increasing corporate earnings. Where interest rates are already very low, a weaker currency has become a desired way to stimulate growth
- 42. Weaker Currency Good Or BadWeaker Currency Good Or Bad Central banks are making aggressive moves to ease monetary policy—either by lowering interest rates or increasing the supply of money by purchasing government bonds (QE). Increasing the supply of money can suppress the value of an economy's currency.
- 43. Weaker Currency Good Or BadWeaker Currency Good Or Bad Central banks are making aggressive moves to ease monetary policy—either by lowering interest rates or increasing the supply of money by purchasing government bonds (QE). Increasing the supply of money can suppress the value of an economy's currency.
- 44. Currency War – HistoryCurrency War – History Indian Chronology 1947(when India became member of IMF): rupee tied to pound. 18 sept,1949: pound devalued; India maintained par with pound 6 june, 1966: rupee devalued, Rs 4.76=1$, after devaluation, Rs 7.50=1$ 1971-1979: rupee is overvalued due to India's policy of import substitution.
- 45. Currency War – HistoryCurrency War – History Indian Chronology 23 June, 1972: UK floats pound, India maintains fixed exchange rate with pound. 1975: India links rupee with basket of currencies of major trading partners. Although the basket is periodically altered, the link is maintained until the 1991 devaluation.
- 46. Currency War – HistoryCurrency War – History Indian Chronology July 1991: rupee devalued by 18-19% March 1993: exchange rate:1$=31.37 1993/1994: rupee is made freely convertible for trading, but not for investment purpose.
- 48. Currency War – Way ForwardCurrency War – Way Forward Currency fluctuations create uncertainty Crimp investment Currency pegs stabilize exchange rates U.S. exporters down--economy at risk. how long the world’s economies can fight, and how they might make peace in the currency wars.
- 49. Currency War – Way ForwardCurrency War – Way Forward India ready to face the global currency war With forex reserves enough to cover 10 months of imports and strong economic fundamentals, India can cope with depreciation, but is its currency policy on track
Notas do Editor
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.
- US and Europe are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending, choosing instead to reduce their debt levels and/or increase their savings. One way in which governments can attempt to drive economic growth is by adopting policies that increase their country’s exports. Politicians have a number of options for doing this, but a favoured choice is to depreciate the local currency, so that a country’s goods/services become relatively cheaper on the global stage. A weak currency also increases the cost of imports, thus making domestic producers more competitive in the national economy, again driving growth. However, there are problems with maintaining a consistently under-valued currency, not least of which is that it encourages inflation, which is itself detrimental to driving growth.