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Latin America Calls Out Rich World For Starting A "Currency War"

Peruvian sole
Peruvian sole


SANTIAGO - While Argentina and Venezuela have had to devalue their currency as a result of rampant spending and foreign exchange shortages, the rest of Latin America faces exactly the opposite problem.

Local currencies have appreciated against the dollar, which has had three negative effects. It is bad for exports; economies have become less competitive in foreign markets; cheap imports have invaded local markets.

The Chilean peso is the currency that has appreciated the most against the dollar in recent months, but then again, so have the Peruvian sol, the Colombian peso and the Mexican peso. During the global financial crisis of 2008, it was the Brazilian real that appreciated the most; to the point that many analysts said that in 2010 it had become the most overvalued currency in the world.

This was when Brazilian Finance Minister Guido Mantega accused the U.S. of starting a “currency war,” after the Federal Reserve announced its first round of “quantitative easing” and began to purchase tons of government bonds with newly issued money. Today, the Fed is in its third round, purchasing $40 billion of mortgage-backed securities every month, with the dollar dropping against major currencies.

Similar programs in Japan and the UK are devaluing the yen and the pound, adding to claims that the developed world has ignited a currency war. These claims were discussed in the G7 and G20 meetings this week.

However, there is no such currency war. The phrase is wielded against the U.S. (and Japan and the UK) because such talk attracts media attention and brings back memories of a historical cataclysm. The only real currency war occurred in the 1930s, when the U.S. and European countries began to devalue their currencies one after the other and one against the other – with the aim of promoting exports and limiting imports. This led to protectionism and the collapse of trade and the inflation and depression of the 1930s that brought the Nazis to power in Germany.

During a currency war, countries devaluate their currency in order to sell more to others and buy less from them.

Making a terrible mistake

The recent moves by the Fed, the Bank of England and the Bank of Japan seek to stimulate stagnant economies via keeping interest rates low, boosting consumption and investment. All three central banks resorted to quantitative easing because they could no longer lower their interest rates and emitting bonds to buy them was the only resource they had left.

By keeping interest rates low to stimulate domestic consumption and investment, the central banks also drive down the price of their currency. As these countries emit more money, investors abandon the dollar, the yen and the pound to go buy securities from countries with higher rates and stronger currencies.

Yes, developed countries’ use of quantitative easing has had the side effect of making successful Latin American currencies more expensive, undermining their trade balance. But its primary effect is to make developed economies grow, and this in turn makes all economies grow. Also, this makes international capital flow toward countries with high interest rates, such as is happening in the Latin American economies.

This sounds good, but it is not enough to convince the Finance Ministers of Brazil, Chile, Peru and Mexico. Brazil was relatively successful in stopping the rise of its real in 2011 and 2012, but the planned slowdown of its overheated economy has been too severe, and in recent months has fuelled inflation. Markets are now predicting that Brazil will let the real rise again in order to cheapen imports and tame inflation.

Latin America’s market economies have the largest growth rates today. Finance Ministers of Chile, Peru, Colombia and Mexico have joined Brazil and started complaining that the depreciation of the dollar is hurting their exports. But their central banks would be making a terrible mistake if they react to all this talk of currency wars by devaluating their currencies to defend their exports. Doing so would turn "talk" of a currency war into the real thing.

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FOCUS: Russia-Ukraine War

A Profound And Simple Reason That Negotiations Are Not An Option For Ukraine

The escalation of war in the Middle East and the stagnation of the Ukrainian counteroffensive have left many leaders in the West, who once supported Ukraine unequivocally, to look toward ceasefire talks with Russia. For Polish daily Gazeta Wyborcza, Piotr Andrusieczko argues that Ukraine simply cannot afford this.

Photo of Ukrainian soldiers in winter gear, marching behind a tank in a snowy landscape

Ukrainian soldiers ploughing through the snow on the frontlines

Volodymyr Zelensky's official Facebook account
Piotr Andrusieczko


KYIVUkraine is fighting for its very existence, and the war will not end soon. What should be done in the face of this reality? How can Kyiv regain its advantage on the front lines?

It's hard to deny that pessimism has been spreading among supporters of the Ukrainian cause, with some even predicting ultimate defeat for Kyiv. It's difficult to agree with this, considering how this war began and what was at stake. Yes, Ukraine has not won yet, but Ukrainians have no choice for now but to continue fighting.

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These assessments are the result of statements by the Commander-in-Chief of the Armed Forces of Ukraine, General Valeriy Zaluzhnyi, and an interview with him in the British weekly The Economist, where the General analyzes the causes of failures on the front, notes the transition of the war to the positional phase, and, critically, evaluates the prospects and possibilities of breaking the deadlock.

Earlier, an article appeared in the American weekly TIME analyzing the challenges facing President Volodymyr Zelensky. His responses indicate that he is disappointed with the attitude of Western partners, and at the same time remains so determined that, somewhat lying to himself, he unequivocally believes in victory.

Combined, these two publications sparked discussions about the future course of the conflict and whether Ukraine can win at all.

Some people outright predict that what has been known from the beginning will happen: Russia will ultimately win, and Ukraine has already failed.

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