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Currency Conflict
Currency Conflict
UPDATED: November 1, 2010 NO. 44 NOVEMBER 4, 2010
Battling Over Currencies
The G20 Seoul summit must work out a feasible plan to ease frictions before a currency war breaks out

Developed countries' low interest policies

United States: In the first half of this year, the U.S. Federal Reserve withdrew part of its stimulus measures. But confronted with a recovery slowdown and impotent fiscal stimuli, the Fed started a new round. In July, it announced buying U.S. Treasury securities; in August, it ordered a cut to the excess reserve requirement ratio. A report issued by the Board of Governors of the Federal Reserve System on October 12 said the United States will keep the interest rates low and might start the second round of quantitative easing monetary policy, which means the Fed buys treasury securities and institutional bonds to inject liquidity into the market, to spur an economic revival.

Japan: The Bank of Japan, the country's central bank, slashed its benchmark interest rate from 0.1 percent to 0.1-0 percent to hold back the yen's appreciation. It is the third time for Japan to have a zero interest rate after 1999-2001. At the same time, Japan's central bank pledged to build a temporary fund of up to $60 billion to buy government bonds which is similar to the U.S. quantitative easing monetary policy.

Europe: The Bank of England decided to keep its key interest rate at 0.5 percent—the lowest level in history. The European Central Bank announced it would keep the key interest rate at 1 percent—also the lowest in history.

Australia: On October 7, contrary to most economists' forecast of an interest rate hike of 25 basis points, the Australian central bank announced to keep the current 4.5 percent rate to offset the Australian dollar's fast and passive appreciation against the U.S. dollar.

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