Since the crisis, major Central Banks have taken measures to protect their currencies. During the crisis in July 2008, an export-driven China effectively pegged the Yuan 6.8 to the dollar to support manufacturers battered by the financial crisis and preserve jobs in a sector that employs tens of millions of people. In June 2010, the People's Bank of China announced that the Renminbi exchange rate will drop the peg against the US dollar and return to the pre-crisis arrangement.

In October 2011, the Japanese central bank intervened in the foreign exchange market. The dollar surged more than 4 per cent to above 79 yen as Japanese authorities intervened to buy dollars. Being an export driven economy, the strengthening of the yen could curtail its growth and hence this intervention. It had also intervened in August and March of 2011, and in September 2010.

Swiss National Bank (SNB) set a minimum exchange rate of 1.20 francs per Euro in Sept 2011 as the rising franc could pose a threat to Switzerland's economy. The Euro was trading at just above the 1.20 Swiss franc target after sitting at around 1.10 francs. The Euro also rose against the dollar. The franc's overvaluation was an acute threat to the Swiss economy and carried the risk of deflation. The Swiss franc sharply weakened against the Euro and the dollar following the announcement. The move immediately knocked about 8 per cent off the value of the franc.

Abenomics aims to expand the economy of Japan, through a combination of measures such as aggressive quantitative easing from the Bank of Japan, a surge in public infrastructure spending, and the devaluation of the yen. Bank of Japan will buy ¥7tn yen of government bonds each month with the aim of rekindling demand and pushing up prices and wages. The Bank of Japan will continue easing until inflation stabilizes at 2 percent. The Japanese yen had breached 100 against the US dollar in May 2013 and the Nikkei index had gone up close to 50% before coming down. The risk of currency war has once again arisen with the Japanese Yen weakening against major currencies in 2013.

We are witnessing swings in emerging and Asian economies currencies on account of possible tapering by the US Federal Reserve. This may have wide ranging implications on the Global trade. The Quantitative easing measures adopted by various Central banks had contributed to the currency volatility. However the withdrawal of such measures by US Federal Reserve also has increased currency volatility, particularly in the Asian and emerging economies.

US DEBT CEILING CONCERNS

The USA must resolve its gross debt to GDP ceiling - It can Increase the calling through Congress, or reign in the fiscal deficit and live within the means of the existing ceiling. Every average citizen in the world would pay for it in some way or another.

There was an expectation of a contagion when the US was downgraded in 2011. Initially, this made the U.S dollar unattractive, and prompted global investors to shift to other currencies. Global players did not consider the Euro as a serious alternative, due to the ongoing European crisis. However, they considered the Yen as well as the Swiss franc as good bets and safe havens.The central bank also understood the impact on their exports /economy, and thereby took prompt action. As a result, the Japanese yen and Swiss franc are no longer safe haven currencies. The action of both the banks had been intended to promote their exports and thereby promote economic growth. However, the lnflows in the currency market did not weaken the Japanese yen as expected. The Euro remained above 1.20 against the franc after the Swiss Central Bank's actions, and thus was able to protect the Swiss economy.

The Proposed US currency bill would allow the U.S government to impose additional duties on products from countries that subsidize exports by undervaluing their currencies. However, there is a risk that if the legislation passes, it could trigger a trade war between these two major economies in the world. The recent economic indicators of the U.S economy would also be appropriately considered before passing such legislation. The Yuan has gained against the dollar since June 2010 after the peg was removed.

The US government will reach its debt limit by mid-October unless Congress acts quickly. If the debt ceiling debate heats up to the point that it is seen by the Fed as that which dampens consumer confidence the Fed could announce a considerably smaller scaling back of its easing than initially planned.

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