Just how instrumental are domestic currency values to international business and import & export of goods and services?
According to the Austrian Central Bank’s governor Ewald Nowotny, there is no need for concern over the attempts by central banks to weaken their exchange rates to boost exports and inflation, clearly playing down the role that currency exchange rates play in the global economy.
“It would be wrong to assume that what is happening right now is a currency war,” Mr. Nowotny said at a conference of economists and central bankers at Goethe University at a time when the Euro is at a 12-year low, and is carrying the burden of vast external debt among European Union member states, is the sovereign currency of nations with up to 57% youth unemployment and has been the subject of the removal of the 1.20 peg against the Franc by the Swiss National Bank.
The safeguarding of Switzerland’s sovereign currency was the last in a series of central bank measures which indicate the woes which face the Euro, however to those within the Eurozone, the division is between the investors and general retail purchasers, who are witnessing the shrinking of the continental economy before them, and the central banks whose interest is to keep the gravy train running in conjunction with the socialist European Commission.
With the Euro today standing at 1.06 against the dollar, parity has almost been reached, however with the US only responsible for 99% external debt ratio compared to, for example, France’s 250%, and the US’s high number of strongly performing corporations and agricultural industry compared to the Eurozone’s strong reliance on IMF bailouts, welfare and continually shrinking output, there is a different perspective on each continental economy.
The United States has a small government, whereas the European Commission is vast and dependent, as demonstrated by the continual injections required from the IMF.
Governor Nowotny, according to a report by the Wall Street Journal, said that there have been large currency fluctuations in the past and that recent developments are “not something that is totally unusual.”
“Exchange rates are relevant but they are not a major dominant factor” for the global economy, he said.
Mr. Nowotny said Greece was an example of a country that wouldn’t benefit much from a devalued exchange rate. Even if Greece weren’t in the eurozone and had its own devalued currency, he said, “Would that be helpful? I doubt it very much.”
This is indeed debatable, as the European Central Bank is currently exposed to 190 billion euros of debt as a result of the bonds which were bought and then secured on very risky collateral – the Greek banks which are now also in dire straits.
This represents a large percentage of the European Central Bank’s 340 billion Euro capitalization which means that, bearing in mind the which is led by a rebellious prime minister who has no intention of paying the debt, if Greece exits, the European Central Bank’s exposure could be quite catastrophic to the value, and indeed the future, of the European single currency.
Meanwhile, whilst dependency and bailouts proliferate the European economy, China is expanding its yuan clearing centers into free-market economies, most notably Sydney, Australia, which gained a yuan clearing agreement at the end of last year, facilitating easier trade between the West and the manufacturing and economic powerhouses of the Far East.