Bundesbank warns of forex manipulation

The German Bundesbank weighed into the simmering currency dispute between the United States and China on Wednesday, warning against the harmful effects of exchange rate manipulation.

Bundesbank warns of forex manipulation
Photo: DPA

In an interview with weekly Die Zeit just ahead of the International Monetary Fund’s autumn meeting in Washington DC, Bundesbank executive board member Andreas Dombret called the practice used by some countries to create a competitive economic advantage “problematic.”

According to the German central bank, such currency manipulation can only be justified in exceptional situations, such as repairing dysfunctional markets. Dombret told Die Zeit, which published excerpts of the interview one day ahead of its release in print, that this would mean “taking short-term measures that serve the establishment of orderly market conditions.”

His comments pitch the Bundesbank squarely into the debate on the threat of what experts are calling “currency wars” – in which countries use exchange rates as a policy weapon. There have recently been a series of exchange rate changes by central banks in Asia and Switzerland to make their exports cheaper by keeping their currencies undervalued.

Such conflicts, in particular the simmering row between China and the US over their currency exchange rates, endanger the entire world economy, the German Institute of Economic Research (DIW) warned on Wednesday.

“A trade war between both countries could mean a bitter defeat for the economy,” DIW economist Georg Erber said in Berlin, referring to the decision by the US House of Representatives last week to put a levy Chinese products unless Beijing let the yuan appreciate against the US dollar.

This manoeuvre could even end up impacting Germany’s economic growth, he added.

The US has alleged that China was purposefully undervaluing the yuan to gain a competitive advantage for its exports, a situation that may contribute to slow economic recovery in the United States.

US politicians hope other nations will join them at the IMF meeting to pressure China to let the yuan rise, a plan Erber said he supported.

“The criticism of (China’s) currency exchange policy, particularly that from the USA, has so far shown little effect,” he said. “Countries like Germany should therefore show some solidarity, because Europe could have similar problems in the future.”

The Local/DAPD/ka

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members


How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”