Bundesbank warns of forex manipulation

The German Bundesbank weighed into the simmering currency dispute between the United States and China on Wednesday, warning against the harmful effects of exchange rate manipulation.

Bundesbank warns of forex manipulation
Photo: DPA

In an interview with weekly Die Zeit just ahead of the International Monetary Fund’s autumn meeting in Washington DC, Bundesbank executive board member Andreas Dombret called the practice used by some countries to create a competitive economic advantage “problematic.”

According to the German central bank, such currency manipulation can only be justified in exceptional situations, such as repairing dysfunctional markets. Dombret told Die Zeit, which published excerpts of the interview one day ahead of its release in print, that this would mean “taking short-term measures that serve the establishment of orderly market conditions.”

His comments pitch the Bundesbank squarely into the debate on the threat of what experts are calling “currency wars” – in which countries use exchange rates as a policy weapon. There have recently been a series of exchange rate changes by central banks in Asia and Switzerland to make their exports cheaper by keeping their currencies undervalued.

Such conflicts, in particular the simmering row between China and the US over their currency exchange rates, endanger the entire world economy, the German Institute of Economic Research (DIW) warned on Wednesday.

“A trade war between both countries could mean a bitter defeat for the economy,” DIW economist Georg Erber said in Berlin, referring to the decision by the US House of Representatives last week to put a levy Chinese products unless Beijing let the yuan appreciate against the US dollar.

This manoeuvre could even end up impacting Germany’s economic growth, he added.

The US has alleged that China was purposefully undervaluing the yuan to gain a competitive advantage for its exports, a situation that may contribute to slow economic recovery in the United States.

US politicians hope other nations will join them at the IMF meeting to pressure China to let the yuan rise, a plan Erber said he supported.

“The criticism of (China’s) currency exchange policy, particularly that from the USA, has so far shown little effect,” he said. “Countries like Germany should therefore show some solidarity, because Europe could have similar problems in the future.”

The Local/DAPD/ka

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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.