Guest blog: More signs of the currency war
In my post yesterday, I noted that many are now asking whether there is a real and possibly rising risk of a currency war. I further noted that contrary to the conventional wisdom which sees no outbreak of one so far, my view is that we have been in a currency war for some time. ...
In my post yesterday, I noted that many are now asking whether there is a real and possibly rising risk of a currency war. I further noted that contrary to the conventional wisdom which sees no outbreak of one so far, my view is that we have been in a currency war for some time.
In my post yesterday, I noted that many are now asking whether there is a real and possibly rising risk of a currency war. I further noted that contrary to the conventional wisdom which sees no outbreak of one so far, my view is that we have been in a currency war for some time.
The Financial Times confirms my view with a story from Seoul about the South Korean government’s imminent imposition of capital controls in an effort to control inflation and the value of the won. In particular, the article notes that South Korea is considering reinstating a 14 percent withholding tax on foreigners’ earnings from sovereign debt. This tax had been removed last year in order to pave the way for Citigroup to list Korea on its World Government Bond Index, which is apparently tracked by important investors such as Japan’s pension funds.
Reimposition of the tax would forfeit this listing and with it the chance to bring greater liquidity to the Korean bond market, something the government has been pursuing for some time. But such liquidity could also lead to a stronger won that would be a drag on Korean exports. So apparently the listing and the greater bond market liquidity are being dropped in favor of the exporters whose apparent concern is not so much the strength of the won versus the dollar, but a possible rise of the won against the Japanese yen.
Does anyone still believe we are not in the middle of a currency war?
Clyde Prestowitz is the founder and president of the Economic Strategy Institute, a former counselor to the secretary of commerce in the Reagan administration, and the author of The World Turned Upside Down: America, China, and the Struggle for Global Leadership. Twitter: @clydeprestowitz
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