Bill Gross Says Currency War Risks Slowing Global Growth
Bloomberg - Mar 02, 2015
Bill Gross said a global race to devalue currencies in an “undeclared†war risks slowing growth instead of stimulating it.
Central bank policies have pushed interest rates below zero in Europe, and countries including China and Japan appear to be devaluing their currencies, he wrote in an investment outlook for Janus Capital Group Inc., where he runs the $1.5 billion Global Unconstrained Bond Fund. While such moves make debt burdens more tolerable and exports cheaper, they are bound to hurt the global economy as a whole, he wrote.
“Common sense would argue the global economy cannot devalue against itself,†Gross wrote. “Either the strong dollar weakens the world’s current growth locomotive (the U.S.) or else their near in unison devaluation effort fails to lead to the desired results.â€
More importantly, Gross wrote, low to negative interest rates hamper the functioning of capital markets and prompt investors to take on higher risk to boost returns, making the financial system more vulnerable. That’s one reason why the U.S. Federal Reserve appears on course to start raising interest rates as early as June, he wrote.
