This is an article from a few days ago at the FT (gated), quoting Simon Derrick, chief currency strategist at BNY Mellon:
- Policy shifts in China and Russia offer the hope that the much discussed “currency wars” are finally drawing to a close
- China announced plans for major currency reform during its Third Plenum, a decadal economic planning forum, in November, and have since widened the yuan trading band, for example.
- Russia is also looking to change currency policy. Announcements from the central bank in October and January made clear its intention to float the rouble and abandon the current trading band in 2015
The key question is what impact these changes in policy will have on international markets:
- It seems likely that a retreat by China from accumulating fresh currency reserves would also lead to a modest “tapering” of its purchases in a range of government bond markets in the developed world
- The reform of currency policy in nations such as China and Russia might lead to some bumps along the way for the developed world, including the possibility of a slight rise in borrowing costs for their governments
In the international sphere, it is unlikely that these forces will have a big influence in the shorter term. Indeed, there are some signs of a fresh flare-up in the “currency wars”. However, in years to come these policy shifts mean many currencies whose value has been buoyed by demand from foreign exchange reserve managers, such as the euro and the Australian and Canadian dollars, may finally trade at more reasonable prices.
