The “Swan Diagram” – developed by the Australian academic Trevor Swan in the 1950s – offers a fresh perspective on global “currency wars”. It suggests that macro imbalances in those EMs that have been most vocal about currency strength (mainly in Latin America) are as much a result of excess domestic demand as they are misaligned currencies. By contrast, those countries that do require a weaker exchange rate to redress macro imbalances (mainly in Emerging Europe) have been notably quiet on the issue of “currency wars”.
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