ECB issues new ‘currency war’ warning

European Central Bank policymaker Jens Weidmann has warned that putting pressure on central banks to pursue more aggressive monetary policies could spark ‘currency wars’ in the future.

He highlighted the force Japan’s new government has exerted on the BoJ to deliver bolder monetary easing and the actions of Hungary’s government as threats to central bank independence, Reuters reports.

“Already alarming violations can be observed, for example in Hungary or Japan, where the new government is interfering massively in the business of the central bank with pressure for a more aggressive monetary policy and threatening an end to central bank autonomy.

“A consequence, whether intentional or unintentional, could moreover be an increased politicisation of exchange rates,” said the Bundesbank chief, who also sits on the ECB’s Governing Council.

“So far the international currency system has come through the crisis without a devaluation competition, and I hope very much that remains the case.”

Last Wednesday, Russian central banker Alexei Ulyukayev said Japan is acting to weaken its currency and there is a danger other countries will follow its lead, prompting a round of devaluations.

Meanwhile, Weidmann warned there was no quick fix for the eurozone and the US to overcome their debt problems, although he said the German economy remains in “good shape”.

“The adjustment process to bring state finances and economic structures back into order is not a matter of months or a few years,” he said.


This article was first published on Investment Week




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