Opportunities to go to a "currency war" – News – Business – Latest news from Uruguay and the world updated

Amidst a declared "trade war" between the United States, the European Union, China and others, another seems to be unleashed: a "currency war". What is the probability that we are facing the beginning of a period of competitive devaluation, eye for eye? That is, a decline in major currencies globally. And what can we expect from this in Uruguay?

Yesterday, the Chinese yuan reached its lowest level in 13 months, at 6.8295 yuan for a dollar, after the Chinese authorities showed signs of greater monetary flexibility to support the economy. the context of an escalation of the tariff war with the United States.

US Treasury Secretary Steven Mnuchin told Reuters on Friday that he was concerned about the fall of the yuan and that his team China is handling its currency

Earlier, US President Donald Trump Is complaining on his Twitter account that interest rate hikes by the Federal Reserve were generating an escalating dollar and eroding the competitiveness of the United States. 19659005] "It is not possible to know if a currency war is imminent, in which the big countries do not want to be more expensive compared to their trading partners," said the director of the Cent in El País . Ministry of Economy, Society and Business of the IEEM, Ignacio Munyo.

A report from the International Finance Institute (IIF), a global trade badociation of financial institutions, noted that the yuan "has dropped drastically in recent weeks", which which can be partly explained by the volatility of currencies, "however the remarkable thing about the recent decline is its speed, which is unprecedented."

"Recent declines are then a sign of exasperation, a leaven of hands, in the face of unpredictable trade tensions," the IIF estimates.

"What matters, of course, is what will follow, if the recent weakness of the yuan marks the beginning of a currency war, a period of competitive devaluation, an eye for an eye We do not do not think so, because China and the United States have too much to lose, "says the report.

For the economist (Vixion Consultores badociate) Aldo Lema "it is doubtful that we could have a short-term currency war, based on interest rates, with developed economies close to full employment and in the process of monetary normalization. "

Lema told El País that "what we could have are exchange rate volatilities badociated with a real phenomenon, the risk of increased protectionism and its consequences on the level and the distribution of global growth. the rate adjustment cycle of the Federal Reserve. "

The IIF pointed out that" a currency war could destabilize both China and the United States. The Achilles 'heel of China is a reversal of the capital-stock leak (which occurred in August 2015) "while" the American Achilles' heel is the S & P 500 index (stock index), which fell sharply in fear of devaluation of the 2015/2016 yuan by "

He added that" the markets would not tolerate uncontrolled escalation and would discipline both parties. The question, of course, is whether we are close to this point. "

Uruguay?

Regarding This may happen in the country, Munyo said that "we must keep in mind that despite the rise of the dollar so far this year, the Uruguayan economy maintains a high rate of change, close to 20%, measured in various ways.Not to mention that the dollar stops increasing. "

For the economist" that's right, we're in a moment The most complex is that the scenario of Trump's pressure on the Federal Reserve to stop rising rates comes at a time when all the symptoms are observed to raise interest rates in the United States: improvements historical labor market, historical improvement of private investment expectations, double fiscal stimulus by the government (tax reform for investment, with a generalized expansion of public spending, which now adds subsidies to the sector damaged by commercial war with China) "

Meanwhile, Matilde Morales, PwC economist, told El País that it would be" necessary to closely monitor the evolution of the issue worldwide, as well as the Fed's monetary policy ".

"And we also have to keep a close eye on domestic factors, which are also important, and a few weeks ago, with a dollar valued, we saw a drop in the demand for peso securities. Last week, however, demand rose again, "added Morales

.In this regard, the director of the debt management unit of the Ministry of Economy and Finance, Herman Kamil, told El País that "the market The proof is in the strong demand that yesterday had the first issue of a title in the newly created pension, which adjusts to the price. index of average nominal wages (see separately)

"The most pronounced preference is observed in shorter-term securities in local currency", added Kamil