Otherwise investors may lose confidence in the dollar, triggering an unwelcome American version of competitive devaluation.
FORBES: Bulletproof Dollar Facing Tough Competition, Warnock Says
But if they react, that makes the U.S. unhappy and starts another competitive devaluation throughout Asia.
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As most East Asian currencies come down in value, there is obviously some pressure of competitive devaluation.
"There is no competitive devaluation, there are no currency wars, " said Sergie Storchak, Russia's deputy finance minister.
They deprived Latin American countries of a relatively painless way to improve their trade balance, ie, a competitive devaluation.
America must beggar its neighbours with a competitive devaluation of the dollar, or beggar itself with a massive fiscal contraction or both.
"The G20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation, " said Ms Brainard.
Countries couldn't use competitive devaluation under the Bretton Woods system.
The so-called currency wars-better defined as competitive devaluation-have gotten a lot of press lately, particularly by those who are pessimistic about the economy and the stock market.
Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system.
The dollar jumped to a high of Y94.42 after Lael Brainard, the top US Treasury official for international affairs, restated US support for monetary stimulus in Japan but warned against competitive devaluation.
My sense is that the yen is still overvalued, pushed up by the relative weakness and competitive devaluation policies of other countries, including the U.S. But at least, for Japanese industry, the worst seems to be over, and confidence is returning, bouyed in no small measure by the blowout profit performance and forecast by the emaculate Toyota (NYSE:TM).
This implies, however, that to remain competitive without recourse to devaluation, Italy must introduce structural reforms to boost productivity and hold down costs, as well as sorting out its public finances.
As well as being burdened by unsustainable levels of external debt, all five economies share the misery of trying to regain lost competitive ground through internal devaluation, in which domestic costs are ground down year after year.
Increasingly, young people are realising that in a monetary union there is not the option of devaluation to make their economies competitive.
In the euro's first decade, southern Mediterranean countries enjoyed the benefit of lower interest rates, but they failed to reform their labour and product markets to make their economies more competitive for a world in which they had lost the safety-valve of currency devaluation.
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