A currency war moved with the key protectionist risks

The France, who will preside over the g-20 for a year, offers its partners to discuss subjects that "angry": international imbalances, the world monetary system, the volatility of prices of oil and prices agricoles All these themes were set aside, for two years, to the urgency of a new banking and financial regulation.

International imbalances (US deficits, surpluses Chinese, Japanesestop) exist for a long time. It would be presumptuous to pretend otherwise Dodge in some trimestres They call two additional readings: first in terms of rates of Exchange and adjustments required to contain surpluses and current deficits; then as a consequence of the differences between savings and investment in each country. Americans must save more while the surplus countries (including China) have to strengthen their domestic demand to import more and to reduce their surpluses. When Timothy Geithner at the g-20 finance proposes to Cap current deficits and surpluses, it is with this in mind. Even if it suggests a limit too easily, which exempts the United States!

In this laborious out of crisis, each may be tempted to play the decline of its currency to boost its competitiveness and its exports. A further strong temptation that household consumption is strongly constrained by income and unemployment, and that investment back to an uncertain pace. A currency war moved, with the key protectionist risks. The dollar is weakening again, with the blessing of the Americans; Chinese pretend to readjust their currency (the yuan) and are all for sticking to the dollar, and the recent recovery of the central bank rates not detract; the Japanese, Swiss, the Brazilians, the Koreans of Sud are to contain the appreciation of their currency. Thus, the euro rises, despite new tensions in the eurozone (Irlande).

Only hope We are not going to return to fixed exchange in the world before long, or the system "target areas" for the major currencies, practised in 1987 fugitive manner. At the time, the "target areas" effect had been to transfer the volatility of the foreign exchange market to financial markets (with the key, the crash of October 1987). Like a cat under the carpet, the volatility moves from one market to another, except if it is treated at the root.

The French Presidency of the g-20 can nevertheless act in several directions: convince the partners of the g-20 the importance of the mentioned topics; push some non-protectionist measures to reduce their deficits (United States); strengthen the international coordination of macroeconomic policies and the surplus countries (including China and some other emerging major) to more cooperative behaviour. Asked China to embark on a gradual reassessment of its motto, not on shock therapy! In the g-20, everyone will have to go a long way. Europe also, controlling its public deficits, by continuing structural reforms and improving its own governance.

Monetary instability also led to reopen the debate on the privileges of the dollar and the promotion of other reserve currencies. In ten years, the euro has made a significant breakthrough. But for many operations, the dollar retains a comfortable. Going to have to take into account the claims of China, Russia, countries of the Golfe for diversification to other reserve currencies, without pointing to at the outset the Americans. At the same time, Chinese and European walking on eggs, because neither one nor the other have interest to precipitate the decline of the dollar. The Chinese, because their reserves are 70 denominated in U.S. currency; the Europeans, because the acceleration of the rise of the euro, due to the release of some investors to the dollar, would create an additional shock in a small shape Europe.

The ECB and the Member States cannot remain passive in such a scenario. It will have to avoid naivety and demonstrate responsiveness, which the Fed misses not today, via the escalation in the injection of liquidity (strengthening of the "quantitative easing"). Europe must show greater internal solidarity, although tolerance to an overvalued exchange rate varies from one Member to another country (see comparisons France-Germany). If the currency battle intensifies, Europe must also find ways of a true policy of the euro currency. It would be paradoxical that good intentions will turn maladjustments of exchange rate and loss of competitiveness, against those who have had the courage to put forward.