Why Do Currency Wars Start?

Why Do Currency Wars Start?
Because when one country plays with its exchange rate, everyone else has to.
BY JOSHUA E. KEATING | OCTOBER 14, 2010

Responding to Japan's unilateral intervention to weaken the yen, followed by similar moves from Colombia, Thailand, South Korea, and other countries, Brazilian Finance Minister Guido Mantega recently declared that the world is "in the midst of an international currency war." In an effort to recover from the global economic crisis, these countries are attempting to stimulate their exports by making their currencies cheaper. These efforts add to the longstanding tensions between Western nations and China over the latter's monetary policy, which many say keeps the yuan artificially low. Could things be getting out of hand?

IMF Managing Director Dominique Strauss-Kahn, among others, has also warned against countries using currencies as "policy weapons." French Finance Minister Christine Lagarde has urged countries to talk about "peace and not war." But U.S. Treasury Secretary Timothy Geithner has denied that there's a currency war going on and says there's "no risk" of one breaking out.

So what exactly is a currency war and how do we know when we're in one, anyway?

We are when we say we are. A "currency war" is more of a political than an economic condition. Governments frequently intervene in their currency markets, increasing the money supply to stimulate trade and reduce unemployment, or decreasing the supply to combat inflation. The problem is that in an interlinked global economy, currencies don't rise or fall in a vacuum. When China keeps the yuan artificially low versus the U.S. dollar, it keeps the cost of Chinese goods low in the United States, contributing to a trade imbalance. That provides a steep incentive for the United States to retaliate by lowering its currency as well. Of course, becuase two countries can only have one exchange rate, this race to the bottom isn't likely to benefit either party.

When many countries devalue their currencies at the same time in an effort to make their exports more competitive, it forces other countries -- Brazil for instance -- to join in to prevent their currencies from rising. Countries often see currency wars as a zero-sum game -- one wins and the others lose. But the widespread devaluation can have a devastating effect on all. Unstable exchange rates can deter international investment, slowing the pace of global economic recovery. And of course, currency wars can have secondary political effects. When countries are fighting over currency, they're less likely to agree to bilateral trade. Additionally, currency pressures could make China less likely to go along with U.S. efforts to contain Iran or North Korea.

Unlike real wars, currency wars don't have defined start dates, but they can be ended with something like peace treaties. In 1936, Britain, France, the United States signed the Tripartite Agreement to address the currency imbalances that had resulted from Britain and the United States leaving the gold standard in the midst of the Great Depression. On the eve of World War II, with an even greater enemy on the horizon, the three countries agreed to refrain from devaluing their currencies.

In 1985, when Japan not China was the rising Asian economic power, the governments of Britain, France, Japan, the United States, West Germany signed the Plaza Accord, under which the dollar would be allowed to depreciate against the yen.

Some are now calling for a new international agreement to stabilize the current round of depreciation. But, obviously, the world economy has changed quite a bit in the last 25 years. The growing power of emerging economies such as Brazil, China, India, and South Korea make it much harder for a few finance ministers in a hotel room to hammer out a deal. Moreover, previous efforts at stabilizing global exchange rates have caused the parties involved to lose faith when they're ultimately undermined by domestic policies.

So as with real wars, declaring one is often far easier than ending it.

Thanks to Barry Eichengreen, professor of economics and political science at the University of California, Berkeley.

China Tuding AS Penyebab Perang Mata Uang

BEIJING - Media China menilai kebijakan moneter longgar yang diterapkan Amerika Serikat (AS) adalah penyebab perang mata uang.AS juga menerapkan standar ganda atas nilai tukar yuan.

“Beberapa politisi Amerika berpendapat bahwa rasional bagi AS mencetak uang dan mempertahankan nilai tukar dolar AS pada level rendah,tapi kebijakan ini ilegal bagi negara lain yang mempertahankan mata uang mereka rendah guna memproteksi ekonomi dan keamanan keuangan mereka. Ini adalah standar ganda,” kata Xinhua.

Kritik atas kebijakan moneter Paman Sam dan pelemahan nilai tukar dolar AS seiring keputusan AS tetap menekan kebijakan Pemerintah China atas yuan. Pengambil kebijakan di AS mengklaim bahwa yuan terlalu rendah sehingga menyebabkan ketidakseimbangan perdagangan global.

”Kebijakan ’mencetak uang baru’ dan menahan suku bunga mendekati nol merupakan penyebab utama perang mata uang,”ujar media Pemerintah China tersebut.

Jumat lalu AS menunda pengumuman laporan tentang mata uang China hingga usai Pertemuan Tingkat Tinggi (KTT) G-20 di Seoul, Korea Selatan, yang akan digelar pertengahan November mendatang. Penundaan ini menurunkan ketegangan AS-China. Kritik Xinhua juga dipicu oleh pertemuan Dana Moneter Internasional (IMF) dengan Bank Sentral China (PBOC) di Shanghai kemarin.

Pertemuan ini akan membahas upaya-upaya yang harus dilakukan untuk mendongkrak pemulihan global. Salah satu yang dibahas adalah kekhawatiran adanya perang mata uang global yang dikhawatirkan menghancurkan pemulihan global. “PBOC menjadi tuan rumah dalam pertemuan pemimpin dan pejabat dari Asia, Afrika, Eropa, Amerika Utara dan Selatan,” ungkap IMF.

Saat ini China didesak untuk mengizinkan terjadinya penguatan atas yuan. Beberapa kritikus menilai yuan terlalu murah 40 persen sehingga eksportir China mendapatkan keuntungan tidak adil.Per Juni lalu PBOC mengeluarkan reformasi yuan.Sejak saat itu nilai tukar yuan terhadap dolar AS menguat kurang dari tiga persen.

Beberapa negara dipimpin AS dan IMF terus mendesak China, tapi Negeri Panda menolak revaluasi yang dilakukan secara cepat.

Kemarin PBOC telah mematok nilai tukar yuan di 6,6541 per USD1 atau lebih rendah dari posisi Jumat lalu di 6,6497 per USD1. Beberapa negara, termasuk Jepang,telah melaksanakan intervensi untuk menurunkan nilai tukar mereka.Langkah ini memicu perang mata uang seiring upaya beberapa negara mendongkrak ekspor mereka yang terguncang oleh pelemahan global.

Media China lainnya, People’s Daily,melaporkan bahwa Negeri Tirai Bambu tidak akan menuruti tekanan dunia internasional. Tekanan Barat yang dipimpin AS dinilai akan merusak ekonomi global.

“Jika yuan menguat secara cepat akibat tekanan dari AS dan beberapa negara lain, itu berarti China telah memanipulasi nilai tukarnya,”papar Periset Chinese Academy of Social Sciences-lembaga think thank Pemerintah China- Wang Jun.

Dia menambahkan, bukankan manipulasi yuan merupakan hal yang dikritik oleh AS. Wan Jun menjelaskan,tekanan diintervensi yuan akan turun karena surplus perdagangan China telah mencapai puncak.“Terjadi penurunan menjadi USD16,9 miliar pada September, terendah dalam lima bulan terakhir,” paparnya.

Minta AS Lebih Banyak Mendengar

Pada November AS akan menghadapi pemilu. Itulah mengapa mereka menekan China agar menaikkan yuan.Tentu Beijing menolak yuan dipakai sebagai kambing hitam keterpurukan ekonomi AS. Ekonom Chinese Academy of Social Science, He Fan, menilai China mestinya menghindari terjadinya perang mata uang.

“Kita juga khawatir (perang mata uang). Berdasarkan pengalaman sejarah, perang mata uang dalam skala yang besar menyedihkan.Tapi kita akan terus menghadapi konflik ini, terutama di wilayah Asia Timur. Negara seperti Jepang dan Korea Selatan hanya memiliki ruang yang terbatas di kebijakan moneternya,” ungkapnya.

Keputusan Beijing untuk mempertahankan yuan membuat beberapa negara di Asia menderita akibat nilai tukar mata uang mereka terhadap dolar AS menguat secara signifikan. Nilai tukar euro juga melonjak meski Eropa menghadapi permasalahan utang