Currency war means that countries maximize their benefits through
their own currencies, usually by devaluing their currencies to stimulate
exports and gain benefits from the exchange rate. When countries begin
to devalue their currencies competitively, global currency wars and
exchange rate wars will break out.
What's your leverage?
With the quantity of COVID-19 confirmed cases keep raising, the market investors have an unprecedented sense of urgency.
According to an analysis by MSIC, so far, global stock markets have
fallen nearly 20 percent as a result of the spread of the COVID-19
epidemic and the collapse in oil prices, and volatility is expected to
soar to more than 40 percent. It remains to be seen whether the crisis
will follow a pattern similar to that of the past.
Underthe epidemic, major central banks around the world have begun to act.
The Fed cut interest rates by 50 bp and 100bp in a row, lowered the
target range of the federal funds rate to 0- 0.25 percent, announced a
new round of quantitative easing (QE) of $700 billion and cut the
discount rate for emergency loans by 125bp. According to incomplete
statistics, in addition to the Federal Reserve, more than a dozen
central banks, including the Bank of Australia, the Bank of Canada and
the Bank of Korea, have also entered the ranks of interest rate cuts.
Although the European Central Bank and the Bank of Japan, which are
already in negative interest rates, did not cut interest rates further,
they both stepped up quantitative easing. The ECB added an additional
120 billion euros in asset purchases until the end of the year, while
the Bank of Japan announced an Y6,000bn increase of its annual ETF
purchase target to Y12 trillion and a raise of the Japanese real estate
investment trust (J-REITs) purchase target to Y180 billion.
It is worth noting that at present, a single monetary policy is no
longer enough to boost market confidence. At present, the Fed is only
one step away from negative interest rates, and there is a lot of
speculation that the Fed will join the camp of negative interest rates
in the future. However, whether negative interest rates can effectively
boost the economy is still controversial, and the policy has also been
criticized by many parties. The traditional monetary policy system,
represented by the Federal Reserve, has been in trouble. Although
extraordinary policy stimulus has become the norm, it cannot
fundamentally break the situation and will deepen rather than alleviate
the hidden risks.
Judging from the fiscal measures of major economies, the US Congress
has passed an $8.3 billion bill to deal with the COVID-19 epidemic, and
the Trump administration is planning to launch a nearly $1,000bn
economic stimulus policy. Canada has also announced a new fiscal measure
of C$1.1 billion. South Korea's parliament approved a supplementary
budget of 11.7 trillion won to deal with the impact of the epidemic on
the economy and support fragile businesses and domestic consumption.
