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Currency Wars, the Ruble and Keynes

November 21, 2014 in Economics

By Steve H. Hanke

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Steve H. Hanke

The specter of currency wars once again haunts the international chattering classes. Remember back in 2011, when Brazilian finance minister Guido Mantega blamed the U.S. for deliberately weakening the greenback to gain a competitive advantage? Well, now the shoe is on the other foot.

The Yen — an important regional currency — recently sank to a sevenyear low against the now mighty U.S. dollar (USD). This is putting downward pressure on the Korean won and other Asian currencies. The situation is similar in Africa where the Kenyan shilling has hit a three-year low against the USD; the Nigerian naira recently set an all-time low against the dollar; the Ghanaian cedi has shed over 25 percent of its value against the greenback this year. The big Latin American loser is the Venezuelan bolivar, followed by the hopeless Argentine peso. Moving to Europe, Ukraine’s hryvnia has lost over 88 percent of its value against the USD this year, while the Russian ruble has racked up a loss of over 43 percent against the greenback in the same time span. The list could go on, but let’s focus on Russia and the travails of the ruble.

The ruble, while it has not been hit as hard as the hryvnia, has sharply depreciated because of the Russian- Ukrainian conflict and the sanctions that it has spawned. The sanctions are, of course, a mug’s game. Indeed, sanctions have almost universally failed to achieve their objectives. The one thing they do, though, is to impose real costs on many intended and unintended victims, including the international economic system. It is noteworthy just how predictable the unintended consequences are. While the sanctions imposed against Russia have clearly contributed to ruble weakness, they have massively strengthened President Vladimir Putin’s hand.

Thanks to the sanctions imposed against Russia, President Putin’s support rose to 88 percent in October, according to Russia’s most independent polling group, the Levada Center. Undoubtedly, Putin got another boost in the polls after the shabby treatment he received in Brisbane, Australia at the meeting of the Group of Twenty (G20).

Diplomacy is dead. This is dangerous. As Clifford Gaddy, a Russian expert at the Brookings Institution in Washington, D.C., recently remarked, “I fear very much that there is an element of sleepwalking in the policies of key players in today’s world.” Gaddy was alluding to Christopher Clark’s recent book, The Sleepwalkers, which chronicles the origins of the First …read more

Source: OP-EDS

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