In a recent opinion editorial on Project Syndicate, Professor Nouriel Roubini argued that governments shouldn’t use currency wars to boost economic growth. While many central banks around the world have eased monetary policies to jumpstart growth, the US dollar has simultaneously strengthened against both advanced-country commodity exporters and fragile emerging markets.
However, in his op-ed, Professor Roubini warns of the dangers of the US joining the “currency war” to prevent the dollar’s appreciation:
…the US has effectively joined the “currency war” to prevent further dollar appreciation. Fed officials have started to speak explicitly about the dollar as a factor that affects net exports, inflation, and growth. And the US authorities have become increasingly critical of Germany and the eurozone for adopting policies that weaken the euro while avoiding those – for example, temporary fiscal stimulus and faster wage growth – that boost domestic demand.
…Currency frictions can lead eventually to trade frictions, and currency wars can lead to trade wars. And that could spell trouble for the US as it tries to conclude the mega-regional Trans-Pacific Partnership. Uncertainty about whether the Obama administration can marshal enough votes in Congress to ratify the TPP has now been compounded by proposed legislation that would impose tariff duties on countries that engage in “currency manipulation.” If such a link between trade and currency policy were forced into the TPP, the Asian participants would refuse to join.
To read the entire opinion article on Project Syndicate, please click here.