25 Mar 2016
Currency wars have proven futile in the post-crisis era – Deutsche Bank
Gautam Kalani, Research Analyst at Deutsche Bank argues that currency wars have proven futile in the post-crisis era.
Key Quotes
Currency adjustment is not enough to spur growth significantly because global trade is increasingly less important to the overall makeup of GDP.
A significant undervaluation of an EM currency may not be sufficient to drive appreciation via the current account channel; rather, even more currency adjustment may be required for some undervalued currencies.
One should be wary about long a currency on the basis of BEER undervaluation if it is also showing FEER overvaluation, as FEER overvaluation signals that the current account balance is still below its long-term average and therefore has not adjusted by ‘enough’.”
Key Quotes
Currency adjustment is not enough to spur growth significantly because global trade is increasingly less important to the overall makeup of GDP.
A significant undervaluation of an EM currency may not be sufficient to drive appreciation via the current account channel; rather, even more currency adjustment may be required for some undervalued currencies.
One should be wary about long a currency on the basis of BEER undervaluation if it is also showing FEER overvaluation, as FEER overvaluation signals that the current account balance is still below its long-term average and therefore has not adjusted by ‘enough’.”