In my post from last week about central banks I argued that they are devaluing their currencies in a zero-sum game for stimulating their domestic economies at the expense of their trade partners. A recent piece by Jonathan Laing in Barron’s echoes some of the same points. Laing cites Charles and Louis-Vincent Gave of Gavekal Dragonomics, who observe that the eurozone’s trade partners are thus far interpreting the European Central Bank’s quantitative-easing program as a competitive devaluation campaign for the euro, and not really a means to bolster bank lending.
If that’s the interpretation of trading partners around the globe, the ECB campaign could prove corrosive. Who ever heard of a bloc with a large current-account surplus (largely because of German export prowess) devaluing its currency? Likewise, it’s a stretch to think that weaker major partners within the euro zone—France, Spain, and Italy—will ever be able to compete on productivity with Germany. Especially when their consumers are being impoverished by higher prices for imported goods. The monetary program could create global recessionary and deflationary forces, just as competitive devaluations did in the 1930s, the pair worries.