Sunday, January 9, 2011
Currency Wars-III/Internationalization of Renminbi-XIII
Once the Federal Reserve decided to keep printing green dollars, the central banks of other nations including the Bank of Japan (BOJ) reluctantly are following suit. On 5 October 2010, BOJ decided to effectively return to a zero-interest rate policy by lowering its key rate from around 0.1 percent to a range between zero percent and 0.1 percent (Japan Times 7 October 2010). In September, the Japanese government spent more than 2 trillion yen to weaken the yen in the foreign-exchange market. Brazilian Finance Minister Guido Mantega warns that the world is in an “international currency war.” Both India and Thailand complain that their countries face difficulties of a strong currency. The main reason for the currency wars is the result of the G2’s (United States and China) continued fight over the undervalued Renminbi. Prime Minister Wen Jiabao rejected pressure from the U.S. House of Representative’s bill which will allow U.S. companies to petition for duties on imports from China to compensate for China’s undervalued currency. In Brussels, Wen stated, “Do not pressure us on the Renminbi rate (Financial Times 6 October 2010).” Eventually, both EU and China broke down their talk regarding the foreign exchange rate. The G2’s currency wars will continue for a while because China is not an American puppet as Japan was in the 1980s allowing appreciation of the Japanese yen.