Europe wins as interest rates plummet. In Germany, France, Switzerland, Sweden, the monetary cost of ten years is negative, and the same is true in Japan.
During the G20, after the great crisis of 2008, it was fashionable to mock these summits with little results. Pascal Lamy, then director-general of the World Trade Organization, was not deceiving us at the time: in meetings like this, it is not the decisions we make that matter, but the personal mistakes we avoid. Like devaluing its currency alone, increasing its tariffs, lowering its interest rates alone, and entering the same suicide spiral as it did in the 1930s.
At that time, Earth also succeeded in cooperating and even successfully making joint decisions – cracking down on tax havens, coordinated budget stimulus, central bank coordination, China’s choice to fund the United States, and so on.
A decade later, as the planet begins to beggar-thy-neighbor and strikes an uncooperative and underperforming balance, these times seem like a blessing: Surrender to US President Donald Trump, the Federal Reserve (the central bank) on the 31st Lowering interest rates in July revived inflation and depressed the dollar. This is to forget that the rest of the world is not static. Other countries, India, New Zealand and Thailand, did the same on Wednesday 7th August.
U.S. dollar, the preeminent safe-haven currency
As ECB President Mario Draghi has already announced, the EU will deepen the risk of negative interest rates and run the printing press, while dark news is piling up: German industrial production fell by 1.5% in June, signaling a possible recession in Europe, while failure to reach a deal on Brexit on October 31 would be disastrous.
Finally, in the face of the tariffs imposed by Donald Trump, Beijing has responded by letting its currency slide. Is it voluntary, as White House tenants think, who accuses Beijing of being a “currency manipulator”, or is it a welcome market correction at a time when China is experiencing a severe slowdown?
Read also Article reserved for our subscribers Currency wars, China’s response to Trump
Basically, it didn’t matter: The measure partially wiped out the ever-increasing tariffs imposed by the U.S. president, and most importantly, spooked investors around the world, who feared an economic war would lead to a full-blown recession. The result: the leading dollar, the preeminent sanctuary currency.