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The threat of currency wars: a European perspective. Bruegel Policy Contribution 2010/12, December 2010

Darvas, Zsolt and Pisani-Ferry, Jean. (2010) The threat of currency wars: a European perspective. Bruegel Policy Contribution 2010/12, December 2010. [Policy Paper]

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    Abstract

    This Policy Contribution was prepared as a briefing paper for the European Parliament Economic and Monetary Affairs Committee’s Monetary Dialogue, entitled ‘The threat of 'currency wars': global imbalances and their effect on currencies,' held on 30 November 2010. Bruegel Fellows Jean Pisani-Ferry and Zsolt Darvas argue the so-called 'currency war' is manifested in three ways: 1) the inflexible pegs of undervalued currencies; 2) attempts by floating exchange-rate countries to resist currency appreciation; 3) quantitative easing. Europe should primarily be concerned about the first issue, which relates to the renewed debate about the international monetary system. The attempts of floating exchange-rate countries to resist currency appreciation are generally justified while China retains a peg. Quantitative easing cannot be deemed a 'beggar-thy-neighbour' policy as long as the Fed’s policy is geared towards price stability. Central banks should come to an agreement about the definition of price stability at a time of deflationary pressures, as current US inflationary expectations are at historically low levels. Finally, the exchange rate of the Euro has not been greatly impacted by the recent currency war; the euro continues to be overvalued, but less than before.

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    Item Type: Policy Paper
    Subjects for non-EU documents: EU policies and themes > External relations > international economy
    EU policies and themes > Policies & related activities > economic and financial affairs > monetary policy
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Bruegel (Brussels) > Policy Contributions
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 11 Jan 2011
    Page Range: p. 17
    Last Modified: 15 Feb 2011 18:40
    URI: http://aei.pitt.edu/id/eprint/15441

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