- •The ecb's new bond purchase programme
- •Not too little, possibly too late
- •Credit Crunch in Europe
- •Monetary policy. Costs and intentions
- •Why not to expect recovery anytime soon
- •Financial crisis
- •The perverse effects of easy money
- •As long as politicians in the world’s big three economies continue to dither, another global recession is possible
- •The world economy
- •Data from The Economist’s latest ranking of mba programmes show Europe’s charms waning. A poor economy and Britain’s ill-advised visa policy are to blame
- •No longer the place to be
- •There’s always Canada
- •With the government and consumers exhausted, officials are begging firms to pick up the slack
- •Canada’s economy
- •Getting worse more slowly isn't good enough
- •America's jobs report
- •A gasp of life
- •New government priorities and an enthusiasm for unconventional monetary policy are changing the way the currency markets work
- •The weak shall inherit the earth
The weak shall inherit the earth
Oct 6th 2012 | from the print edition
Other things, though, are not always or even often equal, as the history of currencies and unconventional monetary policy over the past few years makes clear. In Japan’s case, a drop in the value of the yen in response to the new round of QE would be against the run of play. Japan has conducted QE programmes at various times since 2001 and the yen is much stronger now than when it started.
Nor has QE’s effect on other currencies been what traders might at first have expected. The first American round was in late 2008; at the time the dollar was rising sharply. The dollar is regarded as the “safe haven” currency; investors flock to it when they are worried about the outlook for the global economy. Fears were at their greatest in late 2008 and early 2009 after the collapse of Lehman Brothers, an investment bank, in September 2008. The dollar then fell again once the worst of the crisis had passed.
The second round of QE had more straightforward effects. It was launched in November 2010 and the dollar had fallen by the time the programme finished in June 2011. But this fall might have been down to investor confidence that the central bank’s actions would revive the economy and that it was safe to buy riskier assets; over the same period, the Dow Jones Industrial Average rose while Treasury bond prices fell.
After all this, though, the dollar remains higher against both the euro and the pound than it was when Lehman collapsed. This does not mean that the QE was pointless; it achieved the goal of loosening monetary conditions at a time when rate cuts were no longer possible. The fact that it didn’t also lower exchange rates simply shows that no policies act in a vacuum. Any exchange rate is a relative valuation of two currencies. Traders had their doubts about the dollar, but the euro was affected by the fiscal crisis and by doubts over the currency’s very survival. Meanwhile, Britain had also been pursuing QE and was slipping back into recession. David Bloom draws a clear lesson from all this.