For several weeks many disparities between different persisent central bank. The United States is experiencing a weakening dollar and are now seeking to boost exports. Japan is experiencing a weak economy, however, with a strong currency (hence the market intervention to lower the yen). China limits (or manipulates) the appreciation of the renminbi to facilitate its trade policy. As discussed policy monetary, exchange rate policy, trade policy are all contingent on current economic conditions: low demand and re-budget adjustments.
The need for post-crisis monetary policy
The European Central Bank (ECB) has in turn made the leap with the expiry of exceptional refinancing 6 months and 1 year and gradually reducing its participation in government bonds (more than 10 billion euros in 2009 we are today to evoke million). These measures are distinguished primarily by other central banks around the world who are more likely to reverse the measures already undertaken during the crisis. In addition, the appreciation of the euro would be more conditioned to unsterilized purchases of assets by some countries that increase their liquidity, so their monetary base, which eventually leads to a decline in their currency.
In this context, the ECB has three ways to improve its policy limit its liquidity policy, supporting the bonds and changing interest rates. If the first two levers have undergone many changes, the issue of interest rate maintains a mistrust in the financial markets. The Euro Interbank Offered Rate, or Euribor, the average rate of pay for interbank term deposits within the euro area is 0.77% for 1 month, 0.99% for 3 months or 1.20% over 1 year while the refinancing rate remains at 1%. A change in that rate is expected mid-2011. In internal politics of Jean-Claude Trichet subject of much debate in recent days especially since the intervention of Axel Weber, member of the Governing Council of the ECB, which supports an immediate halt to redemptions of bonds and sovereign debt the debt of banks in the euro area. The debate is in fact based on arbitration: when stop these extraordinary measures? Weber thinks that acting too soon will cause less damage than acting too late. Jean-Claude Trichet, when its part, maintains that it is not the time - a decision supported at least a majority of the Board of Governors. These discussions have as much impact on the monetary policy of the ECB as its credibility, and that is where the problem of global foreign exchange arises.
The unconventional monetary policies or the valuation of risky assets
We recently assisted as mentioned earlier in the text, the introduction of unconventional monetary policy that is to say an increase in the size of the central bank balance sheets by buying financial assets (like bonds). In this context, the ECB announces gradually prepare the end of the famous exceptional measures. Market reaction: appreciation of the euro vis-à-vis other currencies. It is the uncertainty over other currencies that values the currency of the eurozone. This assessment also appears independent of changes in the Credit Default Swaps (CDS) - derivatives to insure against default risk payment of a state or a business. Better, given the evolution of financial markets including those risky assets, end extraordinary measures taken by the ECB raises investor confidence and therefore a valuation of these asset types. These are essential because they show that the monetary policy of the ECB is no longer so dependent on defects in failure of some states, as was the case a few months ago, but more reforms envisaged and anticipated - particularly coordination of the various central banks. In short, the problem of the monetary policies of various central banks should not so interpreted by financial markets - that emphasize quantitative measures facilitating the recovery of assets - but more by the financial reforms that will be undertaken and efforts by each state vis-à-vis their budget constraint.
Olivier Blanchard highlighted the various factors that play a headache for monetary policy. In the latest report "Global Financial Stability" IMF issues of internal and external rebalancing are highlighted. Policy Exchange First, reserve accumulation prevents the adjustment of exchange between them despite the entry of new capital - it is the case in many emerging countries. The current account surplus recorded in these countries maintain a climate of uncertainty in addition to policies Quantitative Easy. A second factor is based on trade policies that are themselves based on countries' fiscal policies.
Trade Policy and fiscal policy: two factors in the evolution of currency
fiscal policies are related to rebalancing domestic savings. The crisis has reduced private demand, the decline was offset by public demand to limit the decline in economic growth. Today it is imperative that the private demand recovers its leading role in the savings - something even more important that we ask the states to consolidate their budgets and stabilize or reduce their debt. In parallel, the weakness of private demand is accompanied by a dichotomous choice of trade policies between countries. China has built and continues to grow its external demand (internal and otherwise) while the United States know, however, a decline in private demand (high savings), which penalizes its economy. These parameters supply the debates on rate hikes Interest in the U.S. and Europe. Olivier Blanchard's argument is to argue that these economies did not need at the moment of rising interest rates, but macro-prudential measures and priorities relating to financial system reforms. For the French economist, investment and demand will leave if and only if the financial system is reformed.
In sum, the upcoming international meetings such as economic policies will have a key role. Coordination between central banks would be a great way to re-adjust the exchange between different currencies and so-cons carrer expectations of investors (by limiting non-conventional monetary policies, even if sterilized to the image of the ECB). Without coordination the machine would become even more complex. If the financial system takes advantage of current monetary policy is its structural changes (reforms) that will impact the real economy of tomorrow.
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