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4 Dec 2014
Roubini – Currency war contagion to hit Europe
FXStreet (Mumbai) - Nouriel Roubini, professor at New York University and chairman of Roubini Global Economics, believes the surprise expansion of stimulus announced by the Bank of Japan on Oct 31, was a dangerous move that could trigger a round of currency wars.
The contagion of lowering the currency value will hit Europe next, says Roubini. “The first to be hurt by a weak yen [will be] Germany and the Eurozone, so the ECB will have to do quantitative easing,” he says. “The Swiss National Bank, the Norwegians and the Central Europeans” will eventually have to follow.
Mr. Roubini says reactions to Japan’s increase in QE can already be seen throughout Asia. “From Korea to Malaysia to Thailand…even the Central Bank of China has recently cut rates to avoid the strengthening of its currency.”
Moreover, he predicts an all-out currency war since trade balance is a zero sum game and countries competing for a larger share of the market will lower their value of currencies. “Domestic demand is weak in advanced economies, and the only way to grow the economy is to weaken currency in order to boost net exports,” he says.
A natural reaction in such a case is to buy Gold in terms of falling currency. However, Mr. Roubini says there are other assets that can provide an income, like real estate, equities and credit. “Real rates are going to go higher so all of the main factors regarding gold indicate that gold will go down.”, he says.
The contagion of lowering the currency value will hit Europe next, says Roubini. “The first to be hurt by a weak yen [will be] Germany and the Eurozone, so the ECB will have to do quantitative easing,” he says. “The Swiss National Bank, the Norwegians and the Central Europeans” will eventually have to follow.
Mr. Roubini says reactions to Japan’s increase in QE can already be seen throughout Asia. “From Korea to Malaysia to Thailand…even the Central Bank of China has recently cut rates to avoid the strengthening of its currency.”
Moreover, he predicts an all-out currency war since trade balance is a zero sum game and countries competing for a larger share of the market will lower their value of currencies. “Domestic demand is weak in advanced economies, and the only way to grow the economy is to weaken currency in order to boost net exports,” he says.
A natural reaction in such a case is to buy Gold in terms of falling currency. However, Mr. Roubini says there are other assets that can provide an income, like real estate, equities and credit. “Real rates are going to go higher so all of the main factors regarding gold indicate that gold will go down.”, he says.