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Dr Brian Fabbri: It Takes More Than Just QE
Aspire, Thought Leaders | 06 March 2015
By: Lim Si Jie
Articles (169) Profile

Recently, it seems that a currency war is brewing. Governments across the globe have been looking at means to increase business activity due to lacklustre economic growth. One of the ways governments have sought to accomplish this is through quantitative easing. That is, the printing of money.

Déjà Vu Currency War?

The imminent currency war draws too much resemblance to the one in the 1930s. After the Great Depression in 1929, major economies like the US and the UK were trying to ignite their economies by devaluing their currency at the expense of other European economies.

Prior to the devaluation, prominent banks in Europe were failing, leading to capital controls being imposed. Nations were trying to export unemployment to other countries. The devaluations also led to some countries imposing tariffs on imports as a means of protectionism. Sounds familiar?

Japan: First To Strike after US

Dr Brian Fabbri, visiting fellow at NUS’s CAMRI insitute notes that the Japanese government was employing Abenomics to stimulate the Japanese economy starting from 2013. The first step of the three-pronged approach was “to devalue its currency to ease monetary conditions and cheapen yen” through Quantitative Easing (QE).

It was universally lauded as a positive step in Japan’s possible way out of its long struggle against two decades of deflation.

Monetary Easing Alone Is Insufficient

Dr Brian Fabbri wrote that this round of “tit-for-tat policy easing and subsequent currency devaluation” has too many participants, resulting in limited effects. Monetary easing alone is unable to boost global demand – governments need to complement “monetary ease with fiscal ease.” The main problem lies in the economical infrastructures; more funds are needed to create new jobs.

Important Role of the Strong Dollar

With recent market sentiments weighting on the US interest rate hikes, Fed Chair Janet Yellen has set a surprisingly dovish tone. She wanted the US Federal Bank to be more flexible in interest rates and it seemed to have caused the Dollar to stop appreciating.

However, the Dollar has to take on the strong currency role to ensure turmoil does not break loose in the market. Other currencies are likely to continue pegging their currency weaker against the dollar to drive exports in an attempt to boost their GDP in the upcoming year.

Pressure Is On The US

A stumble in the US economic growth will be the greatest risk to global growth in 2015. The US dollar has been appreciating to bear the weight of all the currency devaluation.

However, the most recent economic data of the US in the first two months of 2015 seems to suggest that the faith in a US-led global economic recovery could be waning. Dr Brian Fabbri suggested that the appreciated dollar could be “an impediment to future US economic growth”.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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