‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’
This quotation from Lewis Carroll’s great novel ‘Through the Looking-Glass‘ rather seems to sum up policymakers’ current approach to financial markets. Two recent examples highlight the issue:
• Cyprus. Last month, we were assured that the capital controls introduced in Cyprus were only ‘temporary’ and would be lifted within days, or maybe a few weeks. But last week, the Governor of the central bank changed his mind. Instead, they will be lifted “as soon as possible“. And the criteria for lifting is he needs to “make sure that trust in the banks has recovered sufficiently“. That rather sounds, to the blog at least, as though it could be a decade or more before people are allowed to move their euros around freely again. As Reuters notes, the ‘temporary’ controls imposed by Argentina and Iceland are still in place years later.
• Japan. Also last month, the G20 Finance ministers issued a statement noting that “Japan’s recent policy actions are intended to stop deflation and support domestic demand“. Nothing about devaluation in order to boost exports. But after pausing in its downward spiral whilst the meeting took place, the currency has resumed its fall and has now passed the $1: ¥100 level. This is already a 27% devaluation since the Abe government arrived.
The blog will continue to keep a close eye on developments, particularly with regard to the Japanese yen. Its link to a potential bursting of the oil price bubble is too important to ignore.