Currency Wars 2011

Any optimism for a truce in the currency wars was dampened in the opening week of 2011 as Brazil and Chile took action on their currencies, halting a rise in the Real and employing a more directive approach towards the Peso, respectively.   

With the fight against destabilising capital inflows continuing, a new resolve to enforce a set of battle guidelines is in evidence, with the IMF endeavouring to place itself at the centre, with its recently published paper analysing the impact of capital flows and exchange rate flexibility on the real exchange rate in developing countries.

Despite the IMF having brought the capital controls debate out into the open, it is doubtful that a resolution will be forthcoming as many other interventionary measures are still being employed by individual nations. 

For instance, Brazil has in the past introduced emergency blocks on investors making a large currency transfer out of the country at times of financial crisis and in 2010 foreign currency transfers brokers witnessed cycles of state interference in the value of their currency, with the aim of slowing down capital inflows.  An action which subsequently brought about a rush from successive countries to stop their own currency being the only one to increase.  So, the argument for a set of global currency exchange rules is well attested.

Meanwhile, tension between the US and China continues in 2011.  China's policy of managing its currency and limiting its movement against the US dollar to guarantee its competitiveness in the export market means complaints against China are a-many in the US. Paradoxically, low interest rates in the States have led to investors looking for higher returns in emerging economies, pushing up the currency value and therefore cost of currency exchange transfers to make these investments.   Indeed, the finance minister in Brazil, Guido Mantega recently cited competitive devaluations by advanced countries as amounting to a new trade war.

In the currency ‘war’ however, some believe that the emerging economies should just accept the situation, as the upward pressure on their currencies, in the main, signifies that they are growing growing strongly than the US.

To get clearer and safer advice on your foreign currency exchange transfers contact us on +44 (0) 1491 577 550