For the “currency war” the hot topic, “The Economist” magazine has a provocative assessment of the beginning of the article: tedious in previous years, IMF (International Monetary Fund) and World Bank annual meeting, conference organizers were confused in 2010 lively and interesting – kind of pompous speech the official declined, replaced by stylish series of seminars, and even outdoor fashion there is a coffee bar – but, unfortunately, despite the sunny (author note: 30 degrees Celsius) , look around dressed, but depressing the entire conference, as was the global currency war “dark subject,” the led.

Annual lively novel “new style”, is reflected this year will be the “designer” – IMF’s “new faces” – Zhu Min of the mind. However, the word war, the currency has become so busy, that it makes to have eclipsed all other important topics, but not his wish to see. In fact, participated in many of the annual meeting of senior officials of Finance the initiator of this concept – Brazilian Finance Minister Guido Mantega said the criticism personally. IMF’s Strauss-Kahn is clearly not like the smell of gunpowder intense war of words, he would rather say Confrontation; the OECD’s chief economist, Pier Carlo Padoan used a more precise word, called the “unilateral action”.

What the words to describe the world have been less important, but money and captivating view of this war is clearly beyond the rhetoric itself. In contrast under the global media enthusiasm, a war waged has already started, after a G20 meeting in Gyeongju, South Korea continues, has not yet been settled. However, if we find a careful analysis, which was originally a war not started, the tone is also not as dark and depressing.

Capital Flows, “dynamics”

The so-called currency war, generally have several important implications intertwined: As the midterm elections and other reasons, the RMB exchange rate has become a hot topic in the United States, has become the core of the recent U.S. policy toward China. Meanwhile, as the Chinese central bank vice governor Yi Gang said, “Some of the low interest rates in developed economies”, to promote a large number of global capital flows to emerging markets and developing countries, resulting in these economies face the pressure of capital inflows and currency appreciation (Figure 1, Figure 2). Response to capital flows, capital controls in some countries to take the “legitimacy” seems increasing, and competition “does not appreciate,” and even confrontational “unilateral action” as we worry about the dark future. On the RMB exchange rate for the time being left for future columns, and today we mainly talk about capital flows.

Indeed, unilateral action is likely to bring the global welfare losses. IMF’s report submitted to the G20, if the global coordinated action will bring about two percentage points above the global economic growth, although the accuracy of this data can continue to refine, but not difficult to imagine, if you cancel each other out, to whom unilateral action any good.

However, for capital flows in the discussion before the unilateral action, let us carefully pondering this question: Why would such a flow of global capital? Table 1 will tell us the mystery. This fact is well known, but clouded by the psychological war, we have forgotten the good side of things there. Easy to see that the recovery from the crisis yesterday, not long out of the world. According to IMF forecasts, developed economies this year and next year’s growth of 2%, while emerging market and developing economies, the growth rate will reach 6% to 7%. It is because of the economic performance of the latter are brilliant, will rush to attract global capital, if properly used, these hideous face a new round of capital is not without potential engine of growth.

Growth in emerging markets rose gravity of global capital flows, then the thrust come from it? As mentioned earlier, apparently from the United States and the dollar. In this “currency war”, the U.S. policy of quantitative easing is considered the starting point of everything. It is worth mentioning that, in the U.S. and Japan’s “loose contest”, until now, Japan is still at a disadvantage, the results of the recent continued strength in the yen.

This point, could not help but want to say “Plaza Accord.” Many people think that rapid appreciation of Japan into a “lost 20 years,” the source, but the IMF still Shinohara, vice president of the view, but it is due to “fear of appreciation” and take the long-term monetary policy too loose, gave birth to the destined the bubble burst was a result of the Japanese economy recover.

Now, the “long-term monetary policy too loose,” as the protagonist of prescriptions into the United States. This dose of poison to Japan to bring Japan’s lost not only 20 years, Carry trade through 1997 and 1998 led to the Asian financial crisis. Well, today the United States similar to the prescription of these agents, what would the United States and emerging markets, what kind of outcome?

Capital flows to be exaggerated

Obviously still too early to answer this question. But the claim that the United States and the dollar has led to the appreciation of the global emerging markets and foam, but also some exaggeration. It is obvious from Figure 2, to Asia, for example, despite the country’s currency in the near future a considerable margin of appreciation, but do not forget that this is in crisis after the sharp depreciation of the appreciation, from a longer period of time to study, you will find that, for India, Korea and ASEAN countries, the current real effective exchange rate (REER) and broadly similar to 2002 levels.

Capital flows data are quite similar. UBS, a capital inflow for the economies (including Argentina, Colombia, Egypt, Hungary, Romania, the Philippines, Russia, Vietnam, Peru, Brazil, India, South Africa, Mexico, Turkey, Korea, Indonesia, Poland) The results show that FDI inflows of capital does not include / GDP data does have a sharp rise recently, reaching a level of 2%, however, considering the crisis in 2008 and 2009 a large number of capital outflow of capital inflows but now make up roughly out of scale at the time, and that did not return to pre-crisis high.

Accompanied with capital flows, emerging market credit expansion, and the stagnation of the developed economies, credit split, UBS study, referred to as emerging markets, Re-leverage. Interestingly, the data show that the re-leveraging of credit expansion does not come from the passive expansion of capital inflows after the so-called “high-powered money” (caused by large capital inflows, the central bank put on the passive mobility) in mid-2009 to reach a high point Now the data and did not return to pre-crisis levels. So, what these credit where it comes from the dynamic expansion of it?

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