from Financial Times:
Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.
A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.
The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.
In spite of Mr Mantega’s recent aggressive public statements, however, Brazil has so far held back from taking any action other than intervening in the local currency spot market.
The central bank bought as much as $1bn a day for much of the past two weeks – about 10 times its daily average in recent months – but this was largely to absorb money entering the country to take part in last week’s $67bn share issue by Petrobras, the national oil company.
