The just concluded G20 meeting issued a joint communiqué regarding the worries about global currency war and expressed the intention to "resolutely resist the competitive devaluations and oppose all forms of protectionism".
Despite this, Japan's implementation of monetary easing policy and accelerated yen depreciation are accomplished facts, and the United States' quantitative easing policy further exacerbated in the Obama second term.
It is worth noting that apart from the boycott statement solemnly vowed, the G20 meeting did not publicly accuse Japan and the United States' issuance of excessive currency.
The impact of Japan and the United States' continuous implementation of loose monetary policies include at least two major potential disasters.
First is the disaster of bankruptcy.
Former French President Nicolas Sarkozy's economic adviser Jacques Attali said in his book "State Bankruptcy": "The Chinese people have monthly income of less than 1,000 Euros but are using the hard earned money through pinching and scraping to support the Americans who have 10 times their income."
The latest data released by the U.S. Treasury Department show that China's holdings of U.S. debt topped 1.2 trillion U.S. dollars and is still the largest creditor of the United States.
Faced with slowing domestic economy, the United States, Japan, and Europe have been relying in long term on "quantitative easing" policies to stimulate the economy. They operate at full capacity to print massive currency and issue a large number of treasury bonds to attract China and other developing countries to purchase. These are to promote economic recovery in the United States, but the debts lent by the creditors to the United States continuously shrink and evaporate as the dollar depreciates.
Second is the disaster of inflation.
Improving the export competitiveness of their goods by depreciation of their currencies and depending on exports to get rid of the domestic economic downturn are just the wishful thinking of Japan and other countries.
Although the G20 joint statement presented "We will not reduce our exchange rates in order to improve competitiveness of domestic goods in the international markets", no one is a fool in international competition. Once the U.S. dollar, yen, and euro depreciate, various countries will competitively depreciate their currencies and be forced to involve in the currency way. Central Bank of India relaxed monetary policy for the first time in nine months and announced to cut interest rates, while other developing countries fell into a tangle.
However, the currencies of developing countries have lower degree of internationalization and mainly circulate domestically. The over-issued currencies cannot be digested and are bound to exacerbate asset bubbles and inflation. The over-issued currency by the developed countries can enter the developing countries through various evolved forms under our noses, but the currency printed by China can only be digested by the Chinese people. The yuan will have constantly increased appreciation against the U.S. dollars but continued to decline in purchasing power at home.
In a nutshell, the frenzied banknote printing of Japan and the United States is but to guide the source of trouble to others. Therefore, the "resolute resistance against competitive devaluations" will have only no effect if only remained as idle theorization.
Read the Chinese version at: 日美疯狂印钞带给中国两大祸患, Author: Liu Yonghua
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