Japan’s Central Bank may want a weaker currency, but the Reserve Bank of India
wants nothing to do with a weaker rupee. On Tuesday, the RBI stepped in
to save the currency with major currency purchases as the rupee slipped
to a new low.
Weaker currencies don’t always make a country more competitive, at
least not immediately. It’s a combination of things: labor costs,
location, scale. But one thing is for sure, since the 2008 crisis there
has been what some call a currency war going on. The big guns are from
the Fed, weakening the dollar for a number of reasons. One is to help
make U.S. goods cheaper to acquire. Then came the European Central Bank.
Call that Currency War I.
Now with Japan weakening the yen, we have Currency War II. Korea is complaining about it. And now India is starting to worry about it. The RBI wants to save the rupee. Exporters worry that other competing countries are getting cheaper as their currencies slide even faster.
India’s rival markets are watching their currencies fall and now some exporters are starting to worry, The Economic Times reported on Wednesday. Indonesia and South Africa, for instance, both compete with India in global textiles, agri-products, engineering goods, electronics and chemicals. On Tuesday, the rupee hit an all-time low of 58.98 against the dollar before the RBI stopped the blood letting. One rupee gets you about $0.17. It’s down 6.26% year-to-date.
But exporters are watching their rivals get even cheaper. The South African Rand is down 15.78% year-to-date.
Currency War II is a new phase. Call it the “something’s gotta give” phase. Economists at Ashmore Group think that emerging market central banks will turn to different currencies instead of the euro, yen and dollar. They might buy more gold. But they will likely buy more of each other’s bonds. Then again, that would only make their currencies stronger.
As Asian markets see their currencies slip, China remains a standout. The market is waiting to see if they’ll join the fight and weaken the yuan now that the economy is slowing more than anyone expected, with the second quarter GDP seen coming in at 7.4%, below first quarter growth of 7.7%. The yuan has been strengthening all year against the dollar, up 1.58% year to date, but Beijing could reverse course if the fog of war starts to float over the mainland.
Arvind Mayaram, secretary at the department of economic affairs, told reporters in New Delhi Tuesday that the demand for dollars to buy gold has declined from a peak of $227 million to $7 million a day. The Reserve Bank of India sold dollars today as the rupee’s rapid fall threatened to unsettle government accounts and revive fears of a credit rating downgrade. India is one country that wants no part in the race to the bottom in the world’s fiat currencies. The question now is whether the rupee is done falling? If it’s not, the RBI will likely take the bullets.
Biggest Currency Devaluations This Year
A look at how some of the world’s currencies have fallen against the dollar so far this year.*
Venezuelan Bolivar: -31.75%
South African Rand: -15.78%
Japanese Yen: -9.73%
Aussie Dollar: -9.14%
Egyptian Pound: -9.02%
Argentine Peso: -7.43%
Colombia Peso: 7.24%
Indian Rupee: -6.26%
South Korean Won: -6.06%
Russian Ruble: -5.62%
Chilean Peso: -4.73%
Brazilian Real: -4.08%
Weaker currencies don’t always make a country more competitive, at
least not immediately. It’s a combination of things: labor costs,
location, scale. But one thing is for sure, since the 2008 crisis there
has been what some call a currency war going on. The big guns are from
the Fed, weakening the dollar for a number of reasons. One is to help
make U.S. goods cheaper to acquire. Then came the European Central Bank.
Call that Currency War I.Now with Japan weakening the yen, we have Currency War II. Korea is complaining about it. And now India is starting to worry about it. The RBI wants to save the rupee. Exporters worry that other competing countries are getting cheaper as their currencies slide even faster.
India’s rival markets are watching their currencies fall and now some exporters are starting to worry, The Economic Times reported on Wednesday. Indonesia and South Africa, for instance, both compete with India in global textiles, agri-products, engineering goods, electronics and chemicals. On Tuesday, the rupee hit an all-time low of 58.98 against the dollar before the RBI stopped the blood letting. One rupee gets you about $0.17. It’s down 6.26% year-to-date.
But exporters are watching their rivals get even cheaper. The South African Rand is down 15.78% year-to-date.
Currency War II is a new phase. Call it the “something’s gotta give” phase. Economists at Ashmore Group think that emerging market central banks will turn to different currencies instead of the euro, yen and dollar. They might buy more gold. But they will likely buy more of each other’s bonds. Then again, that would only make their currencies stronger.
As Asian markets see their currencies slip, China remains a standout. The market is waiting to see if they’ll join the fight and weaken the yuan now that the economy is slowing more than anyone expected, with the second quarter GDP seen coming in at 7.4%, below first quarter growth of 7.7%. The yuan has been strengthening all year against the dollar, up 1.58% year to date, but Beijing could reverse course if the fog of war starts to float over the mainland.
Arvind Mayaram, secretary at the department of economic affairs, told reporters in New Delhi Tuesday that the demand for dollars to buy gold has declined from a peak of $227 million to $7 million a day. The Reserve Bank of India sold dollars today as the rupee’s rapid fall threatened to unsettle government accounts and revive fears of a credit rating downgrade. India is one country that wants no part in the race to the bottom in the world’s fiat currencies. The question now is whether the rupee is done falling? If it’s not, the RBI will likely take the bullets.
Biggest Currency Devaluations This Year
A look at how some of the world’s currencies have fallen against the dollar so far this year.*
Venezuelan Bolivar: -31.75%
South African Rand: -15.78%
Japanese Yen: -9.73%
Aussie Dollar: -9.14%
Egyptian Pound: -9.02%
Argentine Peso: -7.43%
Colombia Peso: 7.24%
Indian Rupee: -6.26%
South Korean Won: -6.06%
Russian Ruble: -5.62%
Chilean Peso: -4.73%
Brazilian Real: -4.08%
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