currency waves build

As I pointed out a couple months ago, Ben's bet, in short Mr. Bernanke's policy of devaluing the dollar to fight a deflationary economic environment, would require time in understanding its full implications. It is an unprecedented move in devaluing not simply the global reserve currency, but in effect, the global monetary standard. If for example, there was a gold standard, it would not simply be devaluing a currency in relation to the standard, but the standard itself. The most immediate impact on this move is to drop the prices of two of the largest manufacturers on the planet, the US, and because the reminibi is tied to the dollar, China, which is causing headaches for the rest of the world.

The countries on the receiving end of the head bashing are beginning to express their anguish. On Thursday, Japan's new Finance Minister, called for a weaker Yen, as the FT points out:

The Japanese economy suffered a plunge in exports last year after the global financial crisis, a fall accelerated by a sharp rise in the yen, particularly against the US dollar. In contrast to the yen's surge, the won in South Korea, one of Japan's competitors, has weakened, making Japanese products less competitive overseas.

The Korean Won has been appreciating in the past year, though it remains almost 50% less against the Yen pre-crisis, and 25% lower against the pre-crisis dollar:

``With the United States keeping its key interest rate at zero, investors have incentives to sell dollars to buy other currencies. This leads to a weak dollar and the resultant strong won,'' Woori Investment & Securities economist Lawrence Kim said.

This is not good news for Korean exporters such as Samsung Electronics or Hyundai Motor, which would see the dollar-denominated prices of their products rise.

``Outbound shipments will be negatively affected due to the strong won and the current account surplus is expected to substantially shrink throughout the year,'' Kim said.

Over in France, Sarkozy is complaining louder about the dollar's devaluing:

“We can’t increase the competitiveness of our businesses in Europe and have the dollar lose 50 per cent of its value against the euro,” Mr Sarkozy said. “When we produce in the eurozone and sell in the dollar zone, are we supposed to just give up selling?”

While yesterday the Venezuelans announced a devaluing of the Bolivar:

“This is to boost the productive economy, to reduce imports that aren’t strictly necessary and to stimulate exports,” Mr Chavez said during a televised meeting with ministers.

In the in the early 30s, in what became known as one of the policies of beggar-thy-neighbor, nations raced to devalue their currencies, adding to global economic problems. That was traditional thought anyway. Mr. Bernanke believes currency devaluation to be an anti-deflationary tool. He claims it would best be done in coordinated effort, though he hasn't mentioned that publicly in his dollar devaluing, in fact he and the Treasury Secretary deny he is facilitating devaluation. It looks like we are in the process of an uncoordinated global currency devaluation, in completely unregulated and untethered global currency markets susceptible to violent and destructive swings. Ben's bet is a big one.