The Economic Premise series summarizes good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank.
An energetic debate on the danger of a
global currency war has flared up in recent months, stoked
by a renewed move to 'quantitative easing' in the
United States, resurgent capital flows to developing
countries and strong upward pressure on emerging market
currencies. This economic premise views some of the
arguments and concludes that the current United States
monetary easing is a useful insurance policy against the
risk of global deflation. But it is increasing pressure on
developing countries to move toward greater monetary policy
autonomy and exchange rate flexibility, as well as to
undertake the institutional and structural policies needed
to underpin such flexibility. Such reforms will take time.