Posts Tagged ‘currency investment’

Currency war of words continues – time to be in Yuan?

October 13, 2010

For the layman currency investor these are dangerous times. Countries are intervening in currency markets to hold the value of their currencies down as a way of helping their own exports. The currency market is not that “free”. The only certainty for the long term is that the Chinese Yuan is undervalued. Even Gold where the price may keep rising in Dollars may not keep pace – in the long term – with the Yuan. The Korean Won is also undervalued  but whether this will hold in the long term is uncertain. In the Eurozone the Euro will not rise till the lowish values now can get the economies of Spain and Ireland and Greece and Portugal moving again. But the current values can help the export engines in Germany and the UK  to keep going.

The G20 finance ministers will meet in South Korea from October 22 and its leaders are to gather in Seoul next month to try to reach a consensus on the global currency system to prevent competitive devaluation from damaging growth. A weekend International Monetary Fund meeting failed to defuse tensions reports Reuters.

“As chair of the G20, South Korea’s role will be seriously questioned,” Japanese Finance Minister Yoshihiko Noda told a parliamentary panel when asked about South Korea’s currency intervention and its place in G20. Japan intervened in the currency market last month for the first time in more than six years to try to stem a rise in the yen that is putting a fragile economic recovery at risk. Noda declined to say whether Japan would step in again as the Japanese currency hovers near a 15-year high against the dollar. He drew a distinction, however, between Japan’s intervention, which appears so far to have been a one-off move, and more frequent intervention by South Korea and China. “In South Korea, intervention happens regularly, and in China, the pace of yuan reform has been slow.

“Our message is that we have confirmed at the Group of Seven that emerging market countries with current account surpluses should allow their currencies to be more flexible.”

Analysts say Tokyo is worried about Japanese exporters’ waning competitiveness against South Korean rivals, given that the yen has risen about 13 percent against the dollar so far this year, while the won has gained only about 4 percent.

Hopes for a G20 currency consensus look slim. “It’ll be impossible for the G20 to reach a consensus on currencies. Many emerging economies feel that they are being forced to intervene because of a weak dollar,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing to act responsibly but acknowledged Tokyo’s delicate position. “I want South Korea and China to take responsible actions within common rules, though how to say this is difficult because Japan has also intervened,” he told the same parliamentary panel.

Japan sold 2.1 trillion yen ($25.65 billion) last month in its first currency intervention in more than six years to curtail the yen’s strength against the dollar. South Korea has intervened to the tune of about $13 billion since late September to try to cap the won’s rise, but analysts said its intervention had been more aggressive in relative terms.

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