Why zero interest rates might lead to currency volatility

English cricket fans know the Aussies are loth to surrender a lead. For much of the past two decades, Australia has been a high interest-rate economy. But not any more. In March the Reserve Bank of Australia cut its benchmark cash rate to 0.25%. That is the lowest interest rates have ever gone, and as low as they are likely to go. To signal its intentions that rates will stay put, theThe Australian case is telling. Near-zero interest rates are the norm in rich countries.

Now put our hypothetical country in a zero-interest-rate world. Assume its exports are split between raw materials and manufacturing goods. And imagine an economic shock that lowers the demand for commodities. Our country’s exchange rate would fall, helping boost demand for its manufactures. Were interest rates positive, the central bank could cut them to fire up domestic spending and make up for the shortfall of raw-material exports. But at zero interest rates, this is not possible.

Maybe everyone should acquaint (or reacquaint) themselves with John Law and the 'Mississippi Bubble'. Who's printing the paper now? Who runs largest pyramid scheme (masquerade MLM) now? Who plays one group of larcenists against another?

I suppose its to match the volatility of equity markets then

ZIRP creates distortion not only in the currency market but also in other asset classes. This leads to dislocation of economic outcomes, mismatch in asset-liability management and inflated valuation. QE FED ECB shaunrein CNN CNBC FT WSJ NYT FoxNews Forbes Dollar Euro

Very interesting read. Similar opinion has been shared at a discussion by a currency exchange business site.

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One must also consider the impact of zero interest rates on consumer debt which is already at an elevated level in many developed countries.

kinda bullshit that in this era of COVID and technological prowess, ordinary people pay such outrageously high interest rates on things like credit cards instead of paying the same rate as a bank.

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