On Thursday, the Federal Reserve promised to spend $40 billion a month buying mortgage-backed securities until the US labor market improves.
It will also hold short-term interest rates near zero until mid-2015.
Investors are rejoicing. Borrowers are happy. Everyone’s a winner!
Well, not quite.
More from GlobalPost: Fed to continue buying bonds to spur growth
The United States economy is the largest in the world, so its monetary policy decisions have ramifications elsewhere. And they aren't all positive.
The dollar has tumbled in the wake of the Fed’s announcement as investors, who are suddenly feeling more confident about the future, move their money into assets offering higher returns, such as currencies in Asia and Latin America.
Interest rates in emerging economies such as Brazil, China and Malaysia dwarf those offered in the United States, so it makes more sense for investors to hold the real, the yuan and the ringgit than the greenback.
So, what’s the problem?
As investors pile into emerging market currencies, they drive up the value of these units and make exports from the countries that use them more expensive.
That’s bad news for countries heavily reliant on overseas shipments to drive their economies. It also makes imports relatively cheaper, which can fuel inflation.
This — currency appreciation, plus inflation — is exactly what happened between 2009 and 2011, when the Fed began printing money to boost liquidity in the US financial system and spur economic activity.
Policymakers in Brazil, China, Malaysia and elsewhere were furious by the huge amount of capital flooding into their economies, and retaliated by intervening in their foreign exchange markets to drive down the value of their currencies.
That experience is still fresh in the minds of officials in those countries. Brazilian Finance Minister Guido Mantega, who coined the term “currency war,” said today that Brazil's government would monitor the effects of the Fed’s latest quantitative easing and “take adequate measures” if necessary.