Académique Documents
Professionnel Documents
Culture Documents
SEPTEMBER 2013
SEPTEMBER 2013
pacity until it reached this goal. A response from other nations could inevitably lead to a cyclical problem. With nations constantly devaluing their currency in response to similar actions of others, situations of hyperinflation would develop, benefitting no one. However, many nations nonetheless responded to Japan in a manner suggesting tit-for-tat action. Francois Hollande called for the European Union to fix the value of the Euro at a mid-term exchange rate due to its recent rise. The European Central Bank, however, appeared to have other plans, with President Mario Draghi leaving the door open for additional monetary policy actions in order to further address the strength of the Euro. Even outside the Eurozone, South Korean President Park Guen-hye stated she would take preemptive action to help Korean companies avoid making losses, referring to currency action. The Federal Reserve of the United States has maintained monetary policies since the start of the recession to weaken the United States, slashing interest rates. The G-20, which represents the 20 largest economies of the world, addressed these rising currency war concerns in February. Largely ignoring Japans recent actions, the G-20 issued an empty, unenforceable declaration vowing to combat the recession with means other than currency. However, without enforcement, currency wars are a lingering worry for the worlds economies as they struggle to climb forward. China has already voiced some of these concerns, reminding G20 nations of their declaration and suggesting that developing nations would face the majority of the damage in any currency policy. It remains to be seen how effective this currency lockdown will be.
CURRENCY LOCkDOWN?
By Karan Parekh
In January of 2013, Japanese Prime Minister Shinzo Abe stated that Japan would be open to buying large quantities of government bonds and jumpstarting the economy with inflationary measures. These comments led to a firestorm of debate and controversy regarding the recent international currency markets. With many global economies, particularly those in Europe and East Asia still struggling to rise out of an economic downturn, lowering the currency value would be a temporary fix that could potentially start a worldwide currency war, with nations attempting to gain a competitive edge. Currency plays an important role in economic strength. A weaker currency entices foreign investment, increases exports, and supports domestic industries through a (relatively) cheaper cost of production. Nations with stronger currencies will naturally look to those with weaker countries, as their currencies will have more bang for the buck. With many central banking systems printing currency during the economic downturn to facilitate these effects, countries not doing so are disadvantaged in attempting to boost their own economies. Japan recently took public action and followed through with inflationary measures. The Prime Minister referenced other nations, stating central banks around the world are printing money America is the prime example. Citing a need to defend against the rise of the yen, Japan looks to devalue its own currency and achieve a goal of 2 percent currency. In comments made in January, Japan stated that it would purchase assets and government bonds with unlimited ca-
SEPTEMBER 2013
There is a glimmer of hope, however. Given that these recent deals were not ill advised, we know that most Boards of Directors would not permit expensive acquisitions and mergers if they were not confident about long-term growth. Furthermore, corporate profits havent taken a huge beating in this down economy, meaning that companies will have to start spending money to grow. We can only hope this will help our national economy recover. Thus, even though these deals are sometimes talked about
your one-stop shop for finance
SEPTEMBER 2013
The Prospects The European Union, European Central Bank, International Monetary Bank, and Cyprus have settled on a deal. The newly drafted contract eliminates the previous tax levy plan from large account holders (from depositors who have more than 100,000 in their accounts, which has instigated protest in Moscow, as wealthy Russian businessmen are the major Cypriot bank account holders. The newly framed action replaces the tax with monetary losses on bondholders and depositors but the amount to be drawn is still in the dark. European leaders insisted that this new action be executed immediately to ensure Cyprus stay in the Eurozone and restoration of its fragile economy. It is puzzling how this remedy will pan out although credit cards are accepted again, anxious Cypriots are still running to their banks to stock up on cash, even though the banks only allow a 300 withdrawal. It looks like the 10 billion bailout that the European Union promised Cyprus will be deposited in early May. Angry Cypriots have fretted over the opacity of the Brussels deal-making process. Despite the stopgap measure, Cypriot leaders have little time to do much reevaluation because its economy depends on an oversized financial sector that supports the nations 860,000 people, and it has a reputation as a haven for the worlds black money. Cures are bound to run out as they are heavily and rapidly distributed measures of prevention are direly needed in Cyprus and Europe.
Shruti Shah
Senior Managing Editor
[CREDITS]
Jenny Qian
Managing Editor
Charles Bagley, Jeonkang, karan Parekh, Matt Evans, kevin Lai, Roni Luo &Ryan Chen
Financial Analysts
your one-stop shop for finance