Practical analysis for investment professionals
27 March 2013

Avinash Persaud: Who Will Win the Currency Wars?

Posted In: Risk Management

“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.

Read More on the Middle East Investment Conference Blog →

About the Author(s)
Mark Harrison, CFA

Mark Harrison, CFA, is director of journal publications at CFA Institute, where he supports a suite of member publications, including the Financial Analysts Journal, In Practice summaries, and CFA Digest. He has more than 12 years of investment experience as a portfolio manager and securities analyst. Harrison is a graduate of the University of Oxford.

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