The Currency wars: when two elephants engage in a wrestle fight…

 Governments across all continents are doing whatever they can in order to avoid ever using the ‘R’ word in any briefing. I mean the RECESSION.

That itself is not a bad thing. They way they do it could have damning unintended consequences on developing nations, especially those in Africa.
The US and China have been in a tug of war for a while regarding currency manipulation by the latter. Perhaps in order to show its disapproval of the Chinese policy, the US Federal Reserve announced it was pumping over $600 billion into the US economy. Several countries were swift to register their disapproval of the US move but similar or alternative policies with similar effects are being employed by all big economies.
Let us call it  the Cold ‘International Currency’ War. The big guys will surely find a way to resolve it among themselves either by sitting around the table or by indirect punitive measures as is already happening.
We often say that ‘when two elephants fight, it is the grass that suffers’. If Africa’s fragile economies get caught up in the middle of this tug of war, the consequences are obvious. And it would not be the first time Africa will have to suffer the consequences of a currency war. In fact currency war indirectly led to the rise of Hitler and hence the second world war in which 1000s of African military were drafted to fight for their colonial masters and never came back home.
This time, I doubt it will be a war of the armies. It will be a war around kitchen tables and markets across Africa. My fear is that if policies that allow cheap money to flood the markets are unguarded and go viral, they may leave African countries with no borrowing power, less export potential, and dependent on imported goods. A few days ago, I wrote my opinion here on what is needed to really lift the African economies to the level always talked about: it is open access to western markets of African goods and services. Cheap western money will have the direct opposite effect.
Currently, the Bank of Japan, the US federal Reserve, the Bank of England the European Central Bank are competing with one another in pumping out billions of electronic money into their economies. This is no different from the race to build the first nuclear bomb. This policy which they call quantitative easing [The term quantitative easing (QE) describes a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system] is flooding fragile economies with the wrong kind of investors leading to unexpected rise in exchange rates, again. African economies are caught up in the middle of the war among the giants.
Many African countries have made significant progress in creating a more business-friendly environment to promote local investment as well as foreign direct investment. Undeniably, many African countries have made impressive progress towards political and economic stability, too. I applaud the World Bank’s move to promote the African economy with press releases and even YouTube videos. Currently some analyst rate the African economy with the highest return on foreign investment. Annual foreign direct investment flow in Africa rose from $9 billion in 2000 to 62 billion in 2008. Currency policies that will be at war with such an enviable trend are very unwelcome.
By the way, is it not about time that we got a globally empowered body to police financial policies of all nations: the US, Europe, China, and others, to ensure a uniform playing field?
 
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By Kwabena A-Manager

Kwabena, is the founder of Give Back Africa Foundation, a non-profit dedicated to helping kids from underprivileged communities realize their potential. He is a scientist in Pharmaceutical Research & Development. To support his charity, please visit http://givebackafrica.org

3 comments

  1. cheating is cheating, it does not matter who does it. USA, china or UK. We’ve got to call them the right words and stop using mild words like currency policy. China is actually CHEATING! and rather than telling them so , everybody else is following them to cheat/
    Thanks! for this article

  2. I think the US decision was a good one to let china know that everybody can break the rule. China and other nations were shocked by what US did and I think sometimes such actions are necessary.
    Unfortunately, as you said, sometimes there are unforeseen consequences and it’s bystanders (developing countries) who pay for those consequences

  3. I don’t understand these things very well in order to evaluate the consequences of the monetary policies. But I think for a scientist to clearly express opinion on things like this is impressive.
    The idea of a world body to monitor finacial policies is long overdue. Right now china can do anything becos it’s not a democracy. One person can just dream of something and start implementing it the next day. There has to be somebody to take them to task. Bcos of such actions are not deterred, it triggers a chain reaction and other start manipulating thier systems. And the poor countries just look on.

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