Ben Chu: The world should stop fretting about currency wars and focus on growth

Outlook It'll all be over by Christmas. That's what they said of the First World War. A naïve reading of the G7 statement would lead you to believe that last year's currency wars will have an even briefer duration. "We reaffirm that our fiscal and monetary policies have been – and will remain – oriented towards meeting our respective domestic objectives using domestic instruments and that we will not target exchange rates", the collection of central bankers and finance ministers from the world's biggest economies informed us.

Note the "have been". What this means is that when Sir Mervyn King said last November that sterling's recent appreciation was "not a welcome development" he wasn't targeting the exchange rate. Heaven forbid. That verbal intervention was a response to a damaging and unjustified spike in sterling. This means that when François Hollande said this month that "the euro should not fluctuate according to the moods of the markets" he wasn't thinking about a lower exchange rate. Oh goodness no. It was about stabilisation. And so on.

Here's another sentence from the statement: "We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability." Spot the problem yet? Yes, one country's proportionate response to harmful currency volatility is another country's piratical currency manipulation. Currency wars are in the eye of the beholder. That makes the statement, ultimately, a gust of hot air.

The Japan omission confirmed it. It's an open secret that Shinzo Abe's government wants a lower yen to boost exports. The strategy was the talk of delgates at the World Economic Forum in Davos last month. But Japan wasn't even mentioned in the statement.

Currency wars have become a war of plausible deniability. The First World War raged for four agonising years. Expect the covert currency conflict to drag on too.

But does it really matter? For politicians and central bankers to fret about currency wars reflects some disordered priorities. Of course, competitive devaluations are a beggar-thy-neighbour game. And, of course, mercantilist currency manipulation by China – which pushed down interest rates throughout the West to unsustainably low levels – is one reason we're all in this overleveraged mess today.

But the currency swings taking place now are a symptom of the protracted economic weakness across the developed world. Currency movements have mainly been a by-product of quantitative easing schemes designed to boost domestic spending through central bank-asset purchases. Japan's done it. The Federal Reserve has done it. And of course Sir Mervyn and the Monetary Policy Committee have done £375bn of it.

The only major central bank that has refrained from asset purchases is the European Central Bank, and that's because dogmatic German hard-money types go into meltdown at the mere mention of unorthodox measures which – horrors! – might actually help the eurozone recover from recession.

These are not normal times. Under present circumstances of feeble demand and an intensifying global savings glut, governments and central banks should be concentrating on what they need to do to get domestic growth motoring again, not wringing their hands about currency wars.

A robust global economic recovery is the only sustainable route to normalising foreign exchange markets. And a robust global recovery is the world's only escape from these secret and hypocritical currency wars.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future