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TEXT OF INTERVIEW
Kai Ryssdal: The magic in Secretary Geithner’s speech on foreign exchange rates this morning wasn’t so much in what he said, as in what was left unsaid.
Timothy Geithner: We believe it’s very important to see more progress by the major emerging economies to more flexible market-oriented exchange rate systems.
Major emerging economies the White House wants to see progress from? That would be China.
Geithner: This is particularly important for countries whose currencies are significantly undervalued.
Geithner: This is a problem because when large economies with undervalued exchange rates…
Geithner: …act to keep their currencies from appreciating…
Geithner: …that encourages other countries to do the same.
Brazil and Japan to name just two of ’em. There’s a been a rash of countries the past couple of weeks trying to keep their currencies low as one way to help ’em get out of recession. It’s not a trade war of the usual sort, but currency manipulation is economically offensive to some.
Marketplace’s Jeremy Hobson is on the front lines of it in New York. Hey Jeremy.
Jeremy Hobson:Hey Kai.
RYSSDAL: What exactly might a currency war be?
HOBSON: What, you can’t hear the money flying in the background behind me? I’m right on the front lines! But it’s basically a race to the bottom. All the countries in the world want to get their currencies down as far as they can in value so that they can export their way out of this global recession. You mentioned China: They’ve got a very undervalued currency, that means that it’s very cheap for us to buy their stuff — we buy probably more of it than we should — they don’t want to buy very much of our stuff because they can’t afford as much. Therefore, we have a widening trade gap with China. So in a currency war, everybody wants to adopt that Chinese approach of bringing their currency down as far as they possibly can so that they can boost their exports.
RYSSDAL: Give me the basics, though, Jeremy — what’s the key of boosting exports?
HOBSON: Because right now in this global slump, the world’s economy is just not growing fast enough for everyone to sell as much stuff as they want. So they want to put things on sale for everyone else to come in and buy. We can call it the Columbus Day sidewalk sale.
Here’s Eric Viloria, who’s a senior currency strategist at Forex.com.
Eric Viloria: If a store is carrying a lot of inventory and they’re having problems to try and sell that inventory, they’re going to reduce the prices. What’s happening with the countries is just on a broader sense, where you’re reducing the value of your currency in order to try and increase your exports and sell those goods.
HOBSON: And Kai, the countries that some point to as key players in this currency war are Brazil, Peru and Japan. And you remember, I’m sure, we reported just yesterday that in Japan, the central bank took some steps to bring down the value of the yen and get the economy going again.
RYSSDAL: So central banks can do some things, what else can countries do? What do they do to make their money cheaper?
HOBSON: Well, they can sell some of their own money and buy another country’s bonds. That will two things: It pushes their currency down, and it also pushes the currency of the other country up. Here’s an example: A lot of global investors bought dollars after the financial crisis, because they were scared of losing their money and U.S. bonds are still seen as a very safe place to put your money. That pushed the dollar up. But now that the Fed here in the U.S. is pumping so much money into the economy, you can’t make that much money on government bonds anymore, so a lot of investors are deciding to put their money in emerging economies, where they can get better returns — places like Thailand and Indonesia — and that’s pushing currencies in those countries higher. They’re having to worry about the value of their currencies and they’ve decided pretty much across the board that they want to bring their currencies down.
RYSSDAL: Yeah. You know Jeremy, the foreign exchange markets are this big, sort of indecipherable box. How would we know if we’re in a currency war?
HOBSON: Well, it’s very difficult to know. It’s not like an ordinary war where you have ships coming into the harbor and you know you’re in trouble. In fact, one guy I speak to often on currency stories, a guy named Mark Chandler, who’s the head of global currency strategy at Brown Brothers Harriman, says we are definitely not in a war.
Mark Chandler: If people are trying to weaken their currencies, they’ve done a horrible job at it. Because all their currencies are higher. The only East Asian currency that’s down for this year is the Hong Kong dollar that’s tied to the U.S. dollar and it’s down like 100th of 1 percent.
HOBSON: One-hundredth of 1 percent, Kai. And that is not, Mark Chandler says, a reason to change your habits on what you’re buying. You’re not going to decide to buy an iPad or a car from another country based on a tiny little change like that in the currency. But obviously, Treasury Secretary Geithner is worried. He’s warned countries that undervaluing their money can lead to asset bubbles and inflation, and the Obama Administration is pushing for this to be an issue to be brought up at this weekend’s IMF meeting in Washington. So we haven’t heard the last word on this.
RYSSDAL: Jeremy Hobson in New York, our currency war correspondent at the bureau there. Jeremy, thanks a lot.
HOBSON: Thanks Kai.