A global war of currency depreciation has begun. Although the weapons are not killing anyone, the slow damage will be no less devastating than nuclear, chemical or biological warfare. In a worst-case scenario, there will be a substantial redistribution of the income and wealth of all nations and an even wider gap between the rich and poor.
The war has now spread to Denmark, Singapore, the EU, Switzerland, Japan and even South Korea and Taiwan. The weapons used include banknotes, central bank control of foreign exchange and interest rates, and vultures (hedge funds) in the financial markets defending and speculating on the currencies.
Many believe that the European Central Bank’s (ECB) quantitative easing (QE) program is the shot that started the battle, but the Swiss central bank had already unpegged the Swiss franc from the euro on Jan. 15. The country also cut its key interest rate to a negative 0.75%.
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On Jan. 29, Denmark’s central bank cut its key interest rate to a negative 0.5%, its third cut within 10 days, so as to defend its fixed foreign exchange rate against the euro. These moves were all preemptive measures against the effect of the EU’s QE program that will be effective as of March 1.
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On Jan. 28, Singapore unexpectedly announced the loosening of its monetary policy, with the currency plunging 1.32% to the lowest since 2010. The move was designed to cope with worsening deflation and stagnant economic growth. Most believe that the Singapore dollar might fall further to S$1.4 against the US dollar by the end of March.
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Hedge funds are going wild in the currency war. Many hedge funds have been zeroing in on smaller countries that have fixed rates against the US dollar or euro. They are shorting the currencies of Saudi Arabia and United Arab Emirates, and taking long positions on the Danish krone.
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Before the implementation of the European QE, the central banks and hedge funds have already taken their positions. Once the QE officially takes effect, the global currency war will ignite.
China’s Ministry of Commerce on Jan 29 warned: “The European QE may accelerate the currency depreciation of various countries, and further upgrade uncertainties over cross-border fund flows.”
Full article: Central banks fight ‘vultures’ in global currency war (Want China Times)
Global Geopolitics 