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The Threat of 'Currency Wars': a European Perspective

Zsolt Darvas and Jean Pisani-Ferry ()

No 1006, Working Papers from Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest

Abstract: The 'currency war', as it has become known, has three aspects: 1) the inflexible pegs of undervalued currencies; 2) recent 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. Current US inflationary expectations are at historically low levels. Central banks should come to an agreement about the definition of price stability at a time of deflationary pressures. The euro’s exchange rate has not been greatly impacted by the recent currency war; the euro continues to be overvalued, but less than before.

Keywords: currency war; quantitative easing; currency intervention; international monetary system (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F33 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-12-15
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: The threat of 'currency wars': A European perspective (2011) Downloads
Working Paper: The threat of 'currency wars'- a European perspective (2010) Downloads
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