YouSaid · the spoken record

Fred Bergsten

lines on the record: 24
first: 2019-09-17
most recent: 2019-09-17
sittings or episodes: 1
sources: podcast

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“For the US, and it's a real complexity, is the more the U.S. escalates the trade war, the more pressure there is for a weaker yuan. And the challenge, I think, for the world is that if China tries to offset weakness in its trade with the United States with a weaker yuan, that puts more pressure on other economies around the world because they're going to be losing out relative to China.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Third party markets are still up and nominal in real terms on a year over year basis. And China's overall surplus is also rising trade surplus, that is. So I think that's mitigating against the big yuan move. The other precipitating event could be evidence that China is losing control over its financial account. And as a result of that outflow pressure, China has forced to use its reserves to sell a lot of its reserves to hold the line on the currency and at some point it may conclude that it's not in China's interest to use its reserves to push back forcefully and thus in order to preserve its reserves it would allow a weaker yuan and in a sense allow more of the outflow pressure to be met through a rise in the current account surplus. The complexity”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“by risk would be in their interest. The other component, which I think is relevant and certainly the part that a lot of us are watching, is how China's broader export performance is evolving and whether the weakness in China's trade with the US transitions or becomes weakness in China's global trade. And certainly I would think that the odds that China would conclude that a weaker yuan is in its interest would go up if there were more evidence than I have seen to date that the trade war with the US was really impeding China's ability to export to other markets. China's exports to other markets, incidentally, have done, they're not doing great because no one's doing great, but China's overall exports to”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Look, China could simply make a choice that in the face of ever rising US tariffs, it simply wants a yuan that's weaker by 10%. China is on a day-to-day basis pushing against market pressure that right now would lead to a weaker yuan. And if China doesn't push against that market pressure in a sustained way, it wouldn't take that much to get a pretty significant down move. That's always been one of the risks that the US has run with the escalating trade war in the context where the yuan is not naturally strong. The U.S. is relying on China to prevent the yuan from depreciating. So I don't think it actually takes much. It just takes the decision on the part of China's leaders that this is such a shift.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“And that confluence of shifts that triggered by a further depreciation in China's currency lead the US to either intervene directly in the market, whether against the yuan or against others, to try to weaken the dollar, or perhaps more likely prompt the U.S. to broaden or increase its tariffs, and then you get into a new form of escalatory spiral. I do think that is a risk.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Context in which I think there could meaningfully do something which would be characterized as a currency war would really be a situation where currency becomes a major part of the ongoing trade war. What I'm thinking of here is the possibility that China really lets its currency depreciate, not just sort of lets its currency hest the edges of the trading ban that's been established in the past couple of years. But a real depreciation by China, which prompts or triggers a depreciation in many other parts of Asia, puts pressure on the Europeans to at a minimum a conditional easing measures put pressure on the Japanese to combat yen strength and potentially even to intervene.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“I think currency actually is an important issue. The level of yuan against the dollar matters for bilateral trade. It matters for global trade. The fact that the yuan is now back to where it was in 2008 makes it difficult to genuinely get more balance into the trading relationship. The irony for the United States is that right now in a context where the US is introducing significant tariffs on China's trade and in a context where China's economy is relatively weak, the US actually needs China to continue to manage its currency. China has broadly speaking been managing its currency to keep it stronger than otherwise would be the case.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“China's central bank. So those tools allow China to both guide the market without intervention and as needed intervene to keep Yuan within the range that China's authorities are comfortable with. And then there's the sort of overarching background created by China's capital controls, which particularly right now are limiting the ability of Chinese residents to exchange yuan for dollar and by limiting demand for dollars, China makes it take some of the pressure off its reserves and makes it easier for it to manage its currency on a day-to-day basis.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“One of the China signals where it wants the currency to be, when it chooses the center point for the daily reference range for the Yuan's trading or the daily fix, that generally is set according to a formula, but there's scope for the PBOC to deviate from that formula, and the way it deviates from the formula constitutes a signal that helps guide the market. The PBOC also directly intervenes in the market on occasion, less so than in the past, but I think it still certainly was intervening, for example. It was selling dollars and buying yuan for a couple of months last fall. And then the state banks sometimes, at least in my view, intervene in the market likely on behalf of the...”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think they're two separate questions. One is how does China manage and the other is does China's management constitute manipulation? In order to answer, does China's currency management constitute manipulation? You have to be able to differentiate in some way between management, which China clearly does, and manipulation. My definition of manipulation purchases of foreign exchange to hold your currency down and maintain a large trade surplus. So in my judgment, China does not manipulate its currency. China clearly does manage its currency, and it manages its currency in several different ways.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Actually, keeping the dollar strong. It's because of the fiscal policy the Fed has tightened interest rates more than it otherwise would have, which has kept the dollar higher than it otherwise would be. So part of the problem, not all, but a big chunk of it is caused by our own policies which don't make sense in my view. And so we should fix our fiscal position or at least tackle it at the same time that we do this.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“The timing, in my view, is horrible to start these kind of policies. I just think it's unfortunate that it would happen now for two reasons. One is that the United States is already doing all kinds of aggressive things, and I would say some of them are probably contrary to WTO rules in any reasonable interpretation. And to do something else that would be seen as aggressive at this time is unfortunate or sort of already causing problems, even if this is a justified that comes on top of a number of things that, in my view, are not justified. And so the timing is bad in that sense. But also the other part of the timing is that we just launched into a massive fiscal expansion in the U.S. We have the biggest budget deficit now as a share of GDP of the major economies. And at a time when the economy is booming, which really isn't good timing economically, and this is sucking in more imports and making the trade deficit worse and pushing the dollar up.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“And while Gagnon doesn't expect direct foreign exchange intervention or other policies to weaken the dollar for now, he thinks that's probably just as well because the timing isn't great to launch them. Would this type of more proactive action in the currency arena make sense today?”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Land treasury the money secured by the assets it buys, and then in principle that could be almost unlimited, although in practice I wonder how much is really possible and whether the Fed would go along. I don't think the Fed can be forced to do this under current law. It is independent. But on the other hand, whether it would want to be seen as not helping the administration out is an interesting question. I would note that the Fed can sterilize or neutralize the effect of this on the economy if it wants. The Fed would not be taking on any risk on its own account. So this doesn't jeopardize its ability to control the economy. It just makes it more complicated. So it seems to me there's a hurdle there that is not likely to be crossed in terms of Fed cooperation and or legislation from Congress.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“That's a tough one. I have trouble seeing it happen. I mean, I certainly think it's possible, and it's a significant chance it would happen, so at least 20, 30 percent. But I have a hard time assigning it more than a 20 or 30 percent chance. These markets are deep and liquid, and you need much more intervention than Treasury currently has the resources to do. Congresses have to allow Treasury to borrow more, give it some explicit authorization to do that. But that takes an act of Congress, and whether you get that passed in these polarized times seems unlikely, or somehow the Fed would have to get involved. I don't think the Fed wants to get involved. Dollar policy has always been left to the Treasury, so the Fed doesn't want to get involved. They typically cooperate with Treasury, and whenever Treasury goes in, they go 50-50. But even if the Fed were to go 50-50 with Treasury, Treasury doesn't have enough money, even with the Fed's help, to do much. One possibility is the Fed can move.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“This is the tax on foreigners, so it's not hurting Americans, although even then there's some issues because if it pushes the dollar down, which is the point, it makes our imports more expensive. So in some sense, it does get paid. I don't think it's going to pass, but if it did,”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“The question is whether the US would fight back or even land the first blow in the next recession by trying to depreciate the dollar. It's possible, I think, it really raises interesting questions of how you do that. The biggest way people have fought these currency wars is by buying foreign currencies, so other countries buy dollars and they invest that in mainly US treasuries. For us to fight back, we would have to buy foreign currency, say Chinese yuan, and invest that in Chinese government bonds. How would that look politically? I mean, American people might say this is an odd way to fight a war. We're lending money to China. Another option would be to tax foreign investors. And that would push the dollar down and it would have similar effects without having to buy foreign currencies. And there's a bill in the Senate filed this year to do just that. The Baldwin-Holly bill. So it's possible. That might be an easier sell to the public.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“I think it's going to be a problem in the next recession, and it'll be made worse by the fact that countries will be at a zero bound, which means they'll feel less ability to do monetary policy to fight the next recession. And there may be political obstacles to doing fiscal policy. So this becomes a third option that's easy.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think there's a couple reasons. I think to some extent as countries recovered in the global economy finally sort of gained better recovery, people felt less need to do it. Also, the dollar strengthened somewhat starting in late 2014 and 2015. And countries tend to do this more when the dollar is weak than when the dollar is strong. And so they felt less need to push their currencies down since they were already down against the dollar. And finally, there was increasing realization and talk among countries that this kind of currency manipulation, access to currency purchases is bad. The G7 and the G20 both sort of reached formal agreements official in their language communiques of the G7 and G20 that they would not seek to target their exchange rates for competitive purposes, which sort of meant they shouldn't be buying.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“My co author, Fred Burston, and I have called that decade, it's really 11 years, a decade of currency manipulation, because during that period foreign currency purchases by governments just soared to levels that were much higher, even relative to the size of world GDP than ever before. And we estimate that excessive purchases averaged more than $500 billion a year during that period. Total purchases of all currencies by foreign governments averaged a trillion dollars a year just out of all proportion to anything that happened in previous history. So now is it still an issue? Starting in 2014, those purchases declined significantly, and most recently for 2018, I estimate that excessive currency purchases, the amount above what would be reasonable for countries, was only about $100.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“That said, Gagnon actually sees a decline in currency manipulation globally from what he's called a decade of manipulation between two thousand three and twenty thirteen when some countries pursued these zero sum policies. You've called the period between two thousand three and twenty thirteen a decade of currency manipulation. Why is that and is currency manipulation still as big of an issue today?”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“Your own currency and buy foreign currencies to move the exchange rate without easing monetary conditions and without easing fiscal policy, then that's just a beggar-thy-neighbor policy, it's a zero-sum policy. Basically whatever you gain from exports, the other country loses and there's no offsetting benefit to them. That's the most harmful kind of currency war.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“No good definition of currency war. The word most recently prominently was used by the Brazilian finance minister 10 years ago to attack quantitative easing in the United States, which was easy monetary policy. I think that's very misguided because I think we know that easy monetary policy does weaken currencies. That's true. But it has beneficial effects even on foreign countries. For example, if we have easy monetary policy in the U.S., yeah, the dollar weakens, but also lower interest rates, easier borrowing conditions in the US for more spending in the US, which helps to suck in more imports, which offsets the export effect on the exchange rate. So the monetary policy part of currency wars, I think, is actually neutral. It shouldn't be criticized. The G7 and G20 have stated that monetary and fiscal policies should be used freely to keep countries growing. To me, the aspect of currency war that is problematic is when you simply borrow”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT
“To help answer some of these questions, we first turned to Joseph Gagnon. He's a senior fellow at the Peterson Institute for International Economics and a former Fed official who has written extensively about currency conflict. We start by asking what the term currency wars really means. Here's his take.”
2019-09-17 · Goldman Sachs Exchanges · Currency Wars · IDENTIFIED FROM THE TRANSCRIPT