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Currency devaluation ‘easy’ answer to emerging market crisis – Saxo Bank chief ― RT Business

The emerging market currency crisis is being propelled by policymakers who are “seeking the easy answer” by devaluing their currency, which is an unsustainable global model, Saxo Bank CEO Steen Jacobsen told RT.

Governments face huge monetary policy decisions in the third and final stage of the global financial crisis which kicked off in 2008 with America's sub-prime mortgage crisis and spilled into Europe, but simultaneous devaluation of currencies in the hope of driving up exports can’t be universally applied, says the Saxo Bank chief.

“We are in the final part of this cycle. Which comes next is probably the mandate for change. We all need to change, the export-driven business model isn’t sustainable,” Jacobsen told RT in an interview at his Moscow office.

“Policymakers are always seeking the easy answer, and the easy answer right now is weakening the currency. But by doing that you have to remember that the only reason anyone buys into an emerging market is because you expect the currency to appreciate. Pursuing devaluation long term will hurt the appetite of long term investors,” Jacobsen explained.

The only thing we have learned from this crisis is that we have learned nothing in the sense that we lack reforms, every political country needs reform,” he said, adding, “we all need to change, because the export-based business model isn’t sustainable.”

“In history, the only change that we have comes from crisis. We need the crisis to create a new and better mandate for change.”

America’s monetary policy has been at the center of the blame game over the huge amounts of investment that has spilled out of emerging markets, and for the severe currency losses in Brazil, Indonesia, Turkey, India, South Africa, and Russia. However, Jacobsen says the blame shouldn’t all be thrown on Uncle Sam.

In the case of the ruble, “at least 50 percent is internally driven, and the rest is external factors. The crisis you see in the ruble is driven by Russian politics.”

Jose Vinals, the director of the IMF’s monetary and capital markets department, said Tuesday the volatility in global markets is caused by problems in particular developing countries and not linked to the US Federal Reserve's decision to reduce its monetary stimulus.