Chinese stock markets are in turmoil, with volatility spreading to Asia, Europe, and the US. Commodity prices, including oil, are plunging in response, and what had already been a sluggish global economy is suddenly threatening to collapse into full-blown crisis.
At the same time, central banks are running out of options to stop the rout. The Chinese authorities have tried in vain to calm markets since the jitters began, but interest rates are already at record lows. Beijing is rumoured to be preparing a huge cash injection, but for the past few years central banks have been pumping enormous amounts of liquidity into the global economy with only moderate results (and increasing concern that the extra cash is feeding unsustainable bubbles in property markets and other places).
Have markets lost faith in the ability of central banks to kick-start the economy? With conventional monetary policies exhausted, are there any alternatives to further rounds of Quantitative Easing? And can countries work together to find a solution, or are we headed for the currency wars and ‘beggar-thy-neighbour’ policies of the 1930s (with the same disastrous results)?
There are, perhaps, reasons to be cautiously optimistic over the long-term. China’s recent currency devaluation was not as large as it could have been, and low energy prices coupled with advances in technology (not to mention the great potential stored up in developing economies) mean that the conditions for robust growth do exist. Will it be enough?
Can central banks prevent another global crisis? Or are we returning to the failed policies of the 1930s? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!