Around the globe, more than fifteen central banks have loosened their monetary policies this year, says a new report on currency.
It adds, “Whether [central banks] have [implemented] rate cuts or additional quantitative easing, the moves have been designed to [boost] economies at a time of heightened fears of deflation,” and many of the bank moves have been unexpected.
“Essentially, central banks are seeking to weaken their currencies by adding liquidity to the system and increasing money supply.”
The problem with this method, says the report, is “if several central banks act to devalue their currencies [all] at once, a currency war can ensue. As we saw after the last major global recession in the 1930s, competitive devaluations can spiral out of control and affect the normal functioning of global financial markets.”
Read more on how central banks are affecting markets.
Also check out: