By Xinhua writers Zhu Lin, Lin Jianyang and So Hiu
SEOUL, Nov. 9 (Xinhua) -- On the eve of G20 Seoul Summit, the world is facing the challenge of second-round monetary "quantitative easing" by U.S. Federal Reserve, which, as a result, means U.S. dollar, the world's reserve currency, would continue to weaken and depreciate against other currencies and more excessive global liquidity would occur with flood of U.S. dollar.
Economists and analysts have warned that weak U.S. dollar and excessive money supply would push up the price for major commodities such as oil, steel, and copper. Emerging economies, such as China and India, need to guard against inflation pressure from influx of money.
With weakened economies in the developed countries and lack of good investment opportunities, on top of low long-term interest rates in the United States, massive speculative capital, or commonly known as "hot money", would flood into faster-growing emerging economies, seeking better returns. As a result, emerging economies should watch out for asset pricing bubble, said economists, who also suggest the G20 Seoul Summit should examine the potential harm to global economic and financial system from the flood of U.S. dollar.
"HOT MONEY" WORSENS "IMPORTED INFLATION"
Deutsche Bank's Chief Economist for Greater China Ma Jun pointed out this second-round quantitative easing, while stimulating the U.S. economy, would depress the dollar exchange rate, harm the competitiveness of other countries' exports, and lead to capital influx in developing countries for higher profits. These countries, in turn, would face difficulties in making decisions, he added.
Ma told Xinhua in an interview that persistent quantitative easing policy would push up prices for financial assets and bulk commodities and increase the potential for higher inflation. On the other hand, quantitative easing may also drive speculative capital to emerging economies, putting them on higher risk of inflation. The global economy would face a bigger threat from inflation than from deflation, especially the developing countries, he said.
Ma said the market prediction had sent the U.S. interest rates dropping and the dollar depreciating even before the U.S. Federal Reserve announced the second round of quantitative easing on Nov. 13, which caused the prices for bulk commodities to rise remarkably in dollar terms.
According to statistics, from May to October this year, the prices of copper, gold and crude oil increased 19.4 percent, 11.8 percent and 8.1 percent respectively on the international market, while the CRB index, a commodity price index, rose 18 percent in that period. Ma said the inflation in some developing countries, including India, Russia and Brazil, has hit 5 percent to 10 percent, and China may also face increasing pressure from inflation next year.
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