Avinash Persaud: Who Will Win the Currency Wars?
“Who will win the currency wars — the Americans or the Chinese?” asks risk expert and chairman at Intelligence Capital Limited, Avinash Persaud, at the CFA Institute Middle East Investment Conference. Currency wars, such as the “beggar-thy-neighbour” policies of the 1930s, might be thought of as domestic responses to domestic problems, but Persaud argues they are actually undeclared phoney wars on other countries with serious implications.
“Devaluation provides no long-term solution,” said Persaud. The same countries deploying the devaluation weapon also have the smallest manufacturing export sector and, when faced with difficulties, have elected to devalue. In contrast, the euro has forced countries to make decisions they have been deferring for too long. Decision makers on policy and their policies matter. “People on the sell side underestimate importance of policy and neglect the implications of policy,” he added.
Persaud believes we are facing an age of volatility. In this new age, currency management becomes more costly and more important to returns. “The strongest economies in the world are those with the lowest interest rates,” said Persaud, “What drives currency is not growth or interest rates; it is inflation.” He stated that the key policies that matter are those that contribute to low inflation and how inflation divides up the cake between creditors and debtors. Inflation is highly political, determining the allocation of wealth in a country.