Mervyn King Bank of England governor
Some major economies in 2013 could attempt to weaken even more their currency to support economic growth, said Mervyn King, Bank of England governor and Chairman of the Monetary Policy Committee, quoted by the Wall Street Journal.
Mervyn King said that his”concern is that in 2013 we’ll see the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy,” in a speech in New York at the Economic Club.
“I think 2013 will be a difficult year, in which several countries are trying to weaken their currencies. Such an approach produces anxiety,”
King added.
Competitive devaluation was used by the major economies in recent years to counter the impact of the crisis and global slowdown. Relaxed monetary policies and other measures such as purchases of financial assets by central banks, led to the depreciation of major currencies.
A cheap currency theoretically makes the exports cheaper and more competitive, helping businesses. This tool could be preferred by more and more countries in the coming months, in the context of attempts to generate economic growth, said the governor, in an interview with the Wall Street Journal.
The global economy is in desperate need for countries with large trade surpluses, such as Germany, the Netherlands and China, to boost demand, but they have little reason to do so, he said. States with major trade deficits must take quick measures to stimulate growth, but have few options.
A number of countries, including Switzerland, Japan and Brazil, have difficulty to temper the appreciation of their currencies, so they do not lose the benefits of exports, he said.
The problem is compounded by the fact that the traditional tools used by central banks to stimulate growth, such as low interest monetary policy have been pushed close to the limit, said King. Interest rates in the U.S., Europe, Japan and other countries are close to zero.
Reply