Do we want to call it a beauty contest for the most anorexic currency -with the sexiest appeal? Or should would avoid nicknames and euphemisms, and call it a self perpetuating currency war?
Branding is a very relevant activity in the real economy. Our central bankers were not going to be immune to its charm. When you put a sticker on a concept or a fact, you are actually working on the unconscious level of the listener, trying to tilt his perception of the issue. That´s the reason Guido Mantega is never invited to jet set parties after 2010, when he dared label what was going on in the USDCNH fix, as a “currency war”. How daring! Who allowed that guy in our circles? Where is he from anyway? Did you say Brazil?
That was only the beginning of the beginning. Later on, the U.S. allowed its currency, the dollar, to devalue vía expansionary fiscal and monetary policy. Through increased spending, implementing ZIRP (NIRP was not an acronym yet), and increasing credit and the money supply. Over time, they managed to drive the USDJPY to a level of 76. A few months later they took the EURUSD to an astounding high of 1,40 this year.
The Swiss were the next to join the fray. Starting august 2011, they put a 1,20 floor on the EURCHF, and bought foreign currency to the value of more than 60% of their GDP,. They were forced by the market to put their money where their mouth was. Central Bank omnipotence was not yet a motto. It was the first central bank balance sheet bubble in the series. No NIRP enhancement was needed. When things were looking ugly, back in august 2012, super Mario came all in, with his survival of the euro gambit and took everybody on board for the ride. They will never thank him enough. Gratitude is not only the greatest of virtues, but the parent of all others. Go ask Marcus Tullius Cicero.
The Japanese were late to war this time. Maybe the emperor was as reluctant to combat the US economically, as his antecessor was when the Pearl Harbor attack was being crafted. Abe and Kuroda realized that they were being priced out of the global market with an exchange rate of less than 80 to the dollar, and less than 100 to the euro. “Abenomics” was the euphemism to use this time around. It comprised a healthy dose of money printing, the continuation of ZIRP, and some currency bashing with the pretext of beefing up their inflation figures. Real wages and German and US exports would foot the bill. Germany and the US were not going to complain. After all, they had their own mischiefs to hide before becoming too vocal about it. Yen was to be reclassified to junk status (see may post). And japanese savers are being massacred. But don´t tell anybody. Nobody seems to know!