The magic bullet

BACK in the days of the gold standard countries competed to show their commitment to “sound money”. Nowadays, the competition is in a different direction: to create more money and weaken the currency. Brazil’s finance minister has talked of an “international currency war”. Dominique Strauss-Kahn, the head of the IMF, this week warned against using currencies as a policy weapon. Wishing that your currency would decline is not the same as making it do so. The old tactic of cutting interest rates has been pursued almost to exhaustion, although Japan lowered rates to a 0-0.1% band this week (see article). But it is hard to create much of a yield differential within the developed world when rates are at or below 1% almost everywhere.

Read at The Economist

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