Who fires first shot of "currency war"?

It takes much less than a CSI to find out who fired the first shot in the latest currency disputes.

In early September, news that the U.S. Federal Reserve was leaving its door open for a second round of quantitative easing started to make headlines, spurring the building of short positions on the market.

This second phase of quantitative easing, dubbed QE2, has been widely viewed "an atomic bomb" given that the Fed's purchases of assets such as bonds will inject further huge liquidity into the U.S. economy.

It should not bother any other countries much had the U.S. dollar not been the dominant international reserve currency.

But given the "exorbitant priviledge" the U.S. has long enjoyed as a currency hegemony, it is no surprise that the move worries other countries with a prospect of them being flooded with cheap U.S. dollars.

The U.S. dollar has been weakening since mid-September against other currencies such as the Singapore dollar, the Thai baht, the Malaysian ringgit and the Indonesian rupiah.

The Japanese yen also hit its highest in 15 years against the U.S. dollar last Friday on New York market. Japan took to public intervening in the forex market for the first time since 2004. There are market speculations that the Thai government might intervene publicly.

The central bank of Brazil put in place a flurry of measures to limit the gains in its exchange rate. Even so, the Brazilian real was stronger Monday.


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