Monetary policy
Currency policy (also known as exchange rate policy) includes, in the broader sense, all government measures aimed at influencing the external value of a currency against one or more other currencies. In a narrower sense, monetary policy refers to the decision and the implementation of measures in two areas: the choice of exchange rate regime , i. H. the embedding of the national currency in the (international) monetary system , and the decisions regarding the price level of the exchange rate in relation to other currencies.
Actors in monetary policy
Monetary policy is usually determined by a central government . The executive body of decisions and guidelines on the price level of exchange rates is the central bank through foreign exchange market interventions and other monetary policy. Instruments (change in the amount of money , the interest rate, etc.).
Monetary policy objectives
Monetary policy principally serves to establish the foreign trade. Equilibrium . However, it is also used for industrial and labor market policy . Achieving goals. Due to the central importance of the exchange rate as the most important price in an open economy, currency policy has a considerable influence on the design of monetary policy . In addition, there can also be effects on fiscal and wage policy (via purchasing power , the value of reserves and the development of the balance of payments ).
External balance
This means, for example, a balanced current account balance . A balanced current account can therefore u. U. represent a goal of monetary policy because a current account surplus u. This may show that an economy can no longer find enough attractive investment opportunities domestically, while a current account deficit has to be financed by external debt.
Price stability
Some economies (especially developing and emerging countries) try to achieve price stability by pegging the exchange rate. By fixing the exchange rate, the attempt is made to adjust the inflation rate for imported goods to the inflation rate of a stable-price anchor currency country and thus to stabilize consumer price developments both directly (via inflation-free imported consumer goods) and indirectly (via inflation-free imported intermediate products) .
Reduction of transaction costs
A further effect of a fixed exchange rate peg can be a reduction in transaction costs . There are two types of transaction costs that a monetary policy strategy can lower:
- Economic agents have to hedge less against exchange rate fluctuations.
- You may be able to exchange at a lower cost.
Achieving a high level of competitiveness
While the benefit of stable exchange rates is a reduction in inflation, appreciation or depreciation can also generate benefits for the economy. If a currency devalues, this makes domestic products cheaper abroad ( competitive devaluation ). In such a case one speaks of a higher international competitiveness of the national economy.
Advantage of such a policy: It is assumed that a devaluation of the domestic currency increases the competitiveness of the economy as a whole - more is exported, production rises, unemployment falls, etc. Disadvantage of such a policy: A confidence in the positive effects of a Devaluation often only hides inefficiencies that go beyond this.
Such a policy of the weak domestic currency is mostly pursued by countries lagging behind in productivity - that is, often by emerging and developing countries. The effective exchange rate is a measure of the competitiveness of an economy .
Nobel laureate in economics, Paul Krugman, describes China's monetary policy, which is shaped by a fixed peg of the renminbi to the US dollar, as a beggar-thy-neighbor policy through competitive devaluation . The Chinese government thus achieved an “artificial” devaluation of its own currency, which would lead to increased competitiveness and the maintenance of imbalances in foreign trade (current account surpluses). According to Paul Krugman, one of the structural problems in the world economy that led to the global financial crisis remains unsolved.
Achievement of high domestic purchasing power
While a depreciating currency makes foreign goods more expensive, an appreciation makes them cheaper, as one can buy more foreign goods in addition to existing assets. This can be of particular importance for countries that have to import important goods (for example raw materials or capital goods).
An example of such a policy of strong domestic currency is the Federal Republic since the 1970s; the D-Mark continuously appreciated against almost all competitors. The resulting competitive disadvantage was offset by lower inflation and higher productivity growth rates. In addition, Germany succeeded in attracting foreign capital very cheaply through this policy of the strong D-Mark.
Access to the capital market
It is of fundamental importance, especially for emerging and developing countries, to have access to international credit. Foreign investors are most likely to be willing to provide capital to a country when they are certain they will get the money (plus a return) back.
If the exchange rate to the lender's currency is fixed, the chances of a profitable investment increase, as the exchange rate risk is reduced - if the exchange rate is variable, investors may U. fear of devaluation.
Monetary policy instruments
The purpose of influencing the price level of an exchange rate is those measures that specifically maintain or change the nominal and / or real value of one currency against another. Various instruments are available for this.
Exchange rate adjustments
Exchange rate adjustments are made through revaluations or devaluations in the form of nominal parity changes or through price changes on foreign exchange markets . Failure to change a nominal parity with simultaneous different macroeconomic developments can lead to an undervaluation or an overvaluation, i. H. a real change in the price of the currency.
Forex market intervention
In the event of a foreign exchange market intervention, the central bank actively intervenes in the market. It acts as a supplier or a customer in order to either increase or decrease the exchange rate.
Verbal market intervention
In some cases, the central bank does not need to intervene directly in the market in order to have a certain effect on the exchange rate - often a mere verbal announcement is sufficient. In such cases, the market could anticipate that the central bank would intervene and, without the intervention itself, cause the exchange rate to move in the direction desired by the central bank.
In addition to the central bank, verbal intervention can also come from the government, for example. However, it is questionable whether a particular statement by the head of government on the exchange rate will set the markets in motion. Reason: In most countries, governments (partly because of the independence of the central bank) do not have any political instruments to turn their announcements into action.
Interest rate policy
About the relationships of interest rate parity , the naturally affects interest rate policy on the exchange rate: A rate hike tends to cause an appreciation of the domestic currency, a cut in interest rates tends to lead to a devaluation . I.e. The central bank's monetary policy also has an impact on the exchange rate.
Legal regulations
While the previous instruments mainly put the central bank in a position to conduct currency policy, governments can also exert a very effective influence on the exchange rate - for example in the form of laws. Parliament can pass a law that obliges the central bank to keep the exchange rate at a certain level.
Exchange rate regime
Main article exchange rate regime
In choosing the exchange rate regime, a government chooses between fixed, semi-flexible and flexible regimes. Fixed regimes include currency unions, currency boards , the de facto suppression of a nat. through a foreign currency ( dollar or euroization ) and regimes with fixed but adjustable exchange rates (parities). In these regimes sets the exchange rate policy. Authority fixes parity. However, she is ready to adjust them if it seems opportune. In semi-flexible regimes there is no official parity with a partner currency. However, goals in the form of exchange rate corridors ( moving or crawling peg / band ) are pursued. In the case of a flexible exchange rate regime, there is no link to any other currency. The exchange rate can fluctuate freely on foreign exchange markets ( free floating ).
Flexible exchange rates have the advantages:
- autonomous monetary policy : the central bank can freely decide on interest rate policy
- To make speculation impossible
- To (theoretically) avoid under- and over-valuation in the medium term, i.e. to enable optimal allocation
Disadvantages are among others
- strong volatility, which many economists believe can hardly be justified by fundamentals
- Transaction costs due to the uncertainty (such as currency hedging transactions)
- Import of volatility: fluctuating exchange rates lead to fluctuating interest rates and thus instability
Fixed exchange rates have the advantages:
- no transaction costs
- Security for investors from abroad
Disadvantages are among others
- Loss of autonomy in monetary policy: The monetary policy of the central bank of the anchor currency is adopted
- Hedging costs: Direct intervention costs (foreign exchange losses) when buying and indirect (inflation) when selling your own currency
- Susceptibility to speculation
European monetary policy
The monetary policy of the European Central Banks aims at monetary stability d. H. a low inflation rate .
By themselves, the euro countries have not tied themselves to any other countries. Exceptions are those countries that are in Exchange Rate Mechanism II ( Denmark ). The ECB has taken on an obligation to intervene for them . In relation to the other currencies, the ECB is pursuing a free float strategy.
However, the European Central Bank has already shown several signs of a dirty float with the US dollar; in several cases the ECB intervened in the foreign exchange market to prop up the euro. Although it cannot always be clearly demonstrated whether and how the central bank intervenes in the market, the ECB sometimes announced its operations in advance.
Switzerland
The Swiss franc (CHF) is a hard currency for various reasons . Due to its political and economic stability, Switzerland is considered a “safe haven” for international currency speculation, especially in times of international crises. 'Currency refugees' exchange other currencies for CHF; therefore the CHF has a high exchange rate and those who are exchanging have no purchasing power parity .
The export industry and tourism are grappling with the problem of the highly valued franc. Occasionally buys Swiss National Bank currency to order the courses are based . In September 2011, the SNB surprisingly pegged the CHF rate to that of the euro and announced an exchange rate target of CHF 1.20 per euro. This measure was abandoned in January 2015.
See also
Single receipts
- ↑ a b c d Spielau, Alexander: exchange rate policy . In: Nohlen, Dieter / Grotz, Florian (Ed.): Small Lexicon of Politics . 6th edition. CH Beck, Munich 2015, ISBN 978-3-406-68106-6 , pp. 727-728 .
- ^ Paul Krugman: World Out of Balance. The New York Times November 15, 2009.
- ↑ welt.de
literature
- Emminger, Otmar (1986): The development of the exchange rate from the “sacrosanct” parity to the flexible instrument of monetary policy . In: Bankhistorisches Archiv 1/1986, Zeitschrift für Bankengeschichte, published by the Scientific Advisory Board of the Institute for Bank History Research, Frankfurt am Main.
- Frieden, Jeffry A. (2015): Currency Politics: The Political Economy of Exchange Rate Policy. Princeton, Princeton UP.
- Frieden, Jeffry A. (2002): Real Sources of European Currency Policy. Sectoral Interests and European Monetary Integration. In: International Organization 56/4, 2002, 831-860 .
- Höpner, Martin and Alexander Spielau (2015): Discretionary exchange rate regimes. Experience from the European Monetary System, 1979–1998. MPIfG Discussion Paper 15/11 .
- Monika Dickhaus: The Bundesbank in Western European Construction - The International Monetary Policy of the Federal Republic of Germany 1848 to 1958 ( Quarterly Issues for Contemporary History , Volume 72); R. Oldenbourg Verlag , Munich 1996, ISBN 3-486-64572-2