International Monetary Fund Annual Meeting this Weekend

...i track a few currencies. i've plotted them in dollar terms, i.e. currency of interest per dollar. so, DGDF (Dollar Goes Down Forever) is "up" in this display...you can see the euro under duress this past spring-early summer and its impressive return to grace, also the commodity country currencies - AUD, CAD, Brazil...also, China is finally letting its currency rise, but the good ole USofA is still whining that it is not rising fast enough...be careful what you ask for I say...the old race to the bottom, begar thy neighbor, currency wars - meanwhile gold, while stable in value since the Roman Empire, is rising rapidly in all currencies...

Dollar's Fall Roils World As Global Leaders Meet, Strains Rise Among Nations Competing to Save Exports

By Tom Lauricella

The Wall Street Journal

Thursday, October 6, 2010

http://online.wsj.com/article/SB1000142405274870469630457553833402804142...

The dollar hit fresh lows against several currencies Thursday, raising pressure on global leaders to address worsening tensions among countries vying to keep their currencies weak and exports competitive.

The relentless rise of currencies from the Japanese yen to the Australian dollar is threatening to derail economic recoveries and global cooperation. In the six weeks since the Federal Reserve began discussing the prospect of further easing monetary policy, the dollar has fallen 7% against a basket of currencies. 

Compounding matters are frustrations with the Chinese government's unwillingness to allow its currency, the yuan, to significantly appreciate. 

On Thursday in Washington, where finance ministers began gathering for the annual meeting of the International Monetary Fund, currency diplomacy was in the forefront for the first time in years. Ahead of the gathering, investors began speculating about the possibility of a global agreement designed to stabilize currency markets and manage an orderly decline of the dollar.

But officials played down the likelihood of any major coordinated steps to address key flash points, such as the dollar's decline and China's refusal to allow its yuan to rise as fast as other nations are demanding. 

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Currency Wars: The Phantom Menace

Kieran Osborne, CFA, Co-Portfolio Manager, Merk Mutual Funds

October 7, 2010

 http://www.merkfunds.com/merk-perspective/insights/2010-10-07.html

The last thing the global economy needs right now is anything that would hamper or derail economic growth. Unfortunately, there appears a growing specter of this occurring. Brazil and Japan’s recent decisions to intervene in the currency markets follow a disturbing trend. If policy makers are not careful, present dynamics may precipitate a worldwide economic slowdown, brought about by protectionist pressures and exacerbated by political motivations globally. 

Competitive currency devaluation appears to be the name of the game for many Treasury departments and central banks alike. It may also be a key driver of the recent strength in gold; in such an environment, an asset that retains its intrinsic value is increasingly sought after. Vietnam instigated a devaluation of the dong earlier this year, Switzerland, a country renowned for stability and neutrality, attempted to devalue the Swiss franc relative to the euro, rhetoric out of Washington has intensified surrounding China’s decision to continue to peg its currency closely to the U.S. dollar, and now Japan and Brazil have both decided to take unilateral action, intervening to weaken their respective currencies. 

For many countries, the motivation to devalue the currency is to spur export growth. Devaluing a countries’ currency is akin to providing a subsidy to the export sector, as it makes that country’s exports relatively cheaper. The flip side, is that it intensifies inflationary pressures, as a devalued currency means that imported goods become relatively more expensive; for a high-growth developing economy, the combination of an undervalued currency and increased production and labor costs can cause substantial domestic inflationary pressures, as evidenced in China. 

Moreover, devaluing a currency may lead to escalating international political strains, global criticism and intensification of protectionist pressures. Maybe the most prevalent example being the U.S. criticism leveled at China, culminating in the passing of legislation aimed at pushing up the value of the yuan. When one currency is artificially weak, other countries may be put at a disadvantage, as other countries’ goods and services may be less competitive in the global market. Such a situation can and has encouraged retaliation, whether through competitive currency devaluations or outright trade wars, in the form of additional import taxes and duties levied, or sanctions placed, on specific exporting countries deemed to be manipulating their currencies. Trade wars are good for no one: they create inefficiencies and slow down global growth. In a period of lackluster global growth, this is the last thing we need. Recent references of a “race to the bottom” and worldwide “currency wars” should not be taken lightly – given that the global economic recovery remains on unsteady ground, the implications of another slowdown in growth could be disastrous.