What Is Currency Arbitrage?

When the interest rate of a country is extremely low (even approaching zero), overseas investors or people of the country borrow or use the currency of the country to buy other currencies with high interest rates (or bonds, stocks, etc. settled in high-interest currency). Poor, this currency is called "arbitrage currency".

Arbitrage currency

Right!

When the interest rate of a country is very low (even approaching zero), overseas investors or people of the country borrow or use the currency of the country to buy other currencies with high interest rates (or bonds, stocks, etc. settled in high-interest currency). Poor, this currency is called "arbitrage currency".

Chinese name

Arbitrage currency

Meaning

Spread

Norm

After entering the recession.

JPY

The world's largest arbitrage currency

After Japan entered the economic recession period, the Bank of Japan relaxed its money to promote exports, and once reduced the discount rate from 6% to 0.5%. In 2001, it began to implement a "quantitative easing" monetary policy. Under the influence of "quantitative easing" monetary policy and "zero interest rate" , the yen has become the world's largest arbitrage currency. The Japanese housewife who controls the economic power of the family has therefore become an important force in global arbitrage transactions. Japanese housewives have been named "kimono speculators" by Mr. Wang Yi.

With the emergence of the financial crisis, the US Federal Reserve also started to follow the Bank of Japan's policy and adopted quantitative easing monetary policy and low interest rate policy (ultra-low benchmark interest rate is in the range of 0-0.25%), so that the US dollar has replaced the yen as the world's most important Arbitrage currency. A cheap dollar is something the Fed likes. One can stimulate exports, and the other can reduce foreign debt in disguise. However, the premise is controllable. If the dollar, the world currency, depreciates too quickly, the inflation tsunami will be inevitable and a currency crisis will be triggered.

However, the yen has not achieved world currency status, so its "arbitrage currency" attribute will not have a major role in fueling the world's financial and commodity markets, while the US dollar is completely different. The world currency has become the "arbitrage currency" It seems that this situation has never happened in history. It is still a mystery to find lessons learned.