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Mark Gilbert

Currency Wars Have a Nuclear Option

As currency wars intensify, central bankers may start considering capital controls.
The currency battlefield.

The currency battlefield.

Photographer: Chris Ratcliffe/Bloomberg

Sweden has fired another salvo in the escalating currency wars by joining Denmark, Switzerland and the European Central Bank in introducing negative interest rates. As this battle intensifies, some market soothsayers are starting to whisper about capital controls as a possible nuclear option for central banks determined to win the race to the bottom of foreign-exchange rates.

The Swedish Riskbank today introduced what it called a "more expansionary" monetary policy, cutting its repurchase rate to minus 0.10 percent from zero and announcing a bond-purchase program. Two-thirds of the 19 economists surveyed by Bloomberg News had predicted no change in rates. One U.S. dollar now buys 8.5 Swedish krona; a year ago, that figure was below 6.5.