Loading ...What If ?
All the Central Bankers agreed on a Currency FIX to stop wild swings and stabilize the World Financial System.
What if they pegged this in a neutral range they all could accept so as not to get in to a lose lose lose currency depreciation war .All they each need to do is say the right things at the right time based on where the DX is .
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Here is an interesting piece to this avail from Alex D at the Trader Dan Beehive
“From Mauldin’s latest article. Thought it was interesting enough to post:
“My friend David Zervos observed in his recent client letter that central bankers are very aware of the consequences of their actions, and while they all feel that stimulus and easing are important, they don’t really want to get involved in currency wars. Thus, a short-term rapprochement may have been quietly agreed to at the recent G20 meeting in Shanghai. Quoting David:
‘What Mario did yesterday was to engineer a credit easing without a currency devaluation. And my suspicion is that this was all part of a gentlemen’s agreement back at the G20 meeting. Here was what I think happened in Shanghai. The BoJ and ECB proclaimed that they were both going to ease aggressively in March. The PBOC then said, well if you drive the EUR to parity and JPY to 130 with deeper negative rates, we will break the USD peg. And that’s when everyone said, ooohhh not so fast. It was surely well understood by all participants that the August and January CNY moves had destroyed all the hard reflationary work the ECB and BoJ had done since Q4 2014. And a full break in the CNY peg would bring a further nasty and unwieldy tightening in global financial conditions (i.e. our 1998 argument). No one wanted that! Also, it was no doubt widely understood by all those involved that the Chinese (with the peg in place) could not take a significant strengthening in the DXY given their domestic debt and growth situation.
So the players in this very complex currency war game all sat down and came up with a simple agreement. The ECB and BoJ would focus purely on the DOMESTIC credit-easing channel. They would not use these highly powerful negative rates (and forward guidance) to lower risk-free real rates, and in turn weaken their currencies. Further, the Fed likely gave assurances that it would not rates, and in turn weaken their currencies. Further, the Fed likely gave assurances that it would not remove accommodation too quickly via rate rises. That would also keep the DXY in check and give the Chinese time to use fiscal policy and structural reforms to manage the unwind of their debt bubble. All that said, I can imagine the Fed is thinking long and hard about ways to focus less on rate rises and more on a domestic credit tightening if conditions warrant further accommodation removal. The exchange-rate externalities which arise from using rates may simply be too problematic given the delicate bilateral “détente” structure between the PBOC and FOMC. That is certainly some food for further thought.’
This win-win approach may in fact work for a period of time, but when there is a true debt crisis in Europe, or if China has a serious hiccup, then it will be every central bank (and country) for itself. I wrote four years ago that the latter half of this decade would bring the most serious currency war we have seen in our lifetime. I really am afraid that I’m going to be right, and it will be on your watch, Mr. or Ms. Would-Be President – and please bear in mind that currency and trade wars of the kind that we had during the early ’30s turned a recession into the Great Depression. It’s going to take a lot of work to keep this worst case from happening on your watch.”
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Fully’s Comment
It may be difficult to Manipulate against the grain for a long period but what if they just Pegg all currencies in this band…that is Do able …The Goldilocks Peg !
What would that look like on a chart ?
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Rambus Posted this last week : What IF Everybody is wrong ?
http://rambus1.com/2016/03/09/wednesday-report-112/
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Central bankers are in control . Hows that make you feel ?
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Meanwhile :
Gold Rises ( in all Currencies)
