Wednesday, October 27, 2010

Currency Wars: South Africa Warns and To Take Measures Against Rand Appreciation

South Africa warned against currency devaluation and trade protectionism as a response to the strong rand.

South Africa will " follow the established course of mitigating the negative impacts of the local currency's gains by boosting foreign currency reserves and easing restrictions on capital outflows".

South Africa warned it could not fully offset the ravages of massive global capital movement, and needed greater productivity and competitiveness to cope with the rise of the rand.

Finance Minister Pravin Gordhan: “Inappropriate short-term responses to global currency adjustments, such as competitive devaluations or increased trade protectionism, will entail longer-term costs to economic growth.
“A co-ordinated international agreement on currency alignment would help to minimise the negative effects of this rebalancing, especially for developing countries.”

Last week he warned that devaluations by separate nations could spark a trade war.

Reserve Bank Governor Gill Marcus had called extraordinary measures to mitigate rand strength.

Reuters Africa: "On Wednesday however, Marcus sat next to the minister as he briefed media on the MTBPS and agreed that trying to depreciate the currency could prove dangerous and fleeting benefit. She said it was vital for Treasury and the bank to work together on measures that “mutually reinforce each other”.

“For us is really is about what is appropriate and what is the likely outcome that you would achieve.

“Japanese debt GDP ratio has now risen to 226 percent. If you look at one or two days where they intervened with trillions of yen and the currency might have weakened for a day or two and then just strenghtened again, “.
“The first question we need to face is not about depreciating the currency but whether there are ways in which we could stop it appreciating further.”

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