Currency War
A Currency War is an economic war that largely involves currency transactions (typically currency devaluations).
- Context:
- It can be intended to produce Export-led Economic Growth.
- It can involve a Rapid Currency Devaluation.
- It can lead to a Fiscal Crisis.
- It can be modeled with a Currency War Game.
- …
- Example(s):
- Counter-Example(s):
- a Military War.
- a Cyber War.
- See: U.S. Dollar, Currency, Gold Bullion.
References
2013
- http://en.wikipedia.org/wiki/Currency_war
- Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.
Competitive devaluation has been rare through most of history as countries have generally preferred to maintain a high value for their currency. Countries have allowed market forces to work or have participated in systems of managed exchanges rates. An important episode of currency war occurred in the 1930s. As countries abandoned the Gold Standard during the Great Depression, they used currency devaluations to stimulate their economies. Since this effectively pushes unemployment overseas, trading partners quickly retaliated with their own devaluations. The period is considered to have been an adverse situation for all concerned as unpredictable changes in exchange rates reduced overall international trade.
According to Guido Mantega, the Brazilian Minister for Finance, a global currency war broke out in 2010. This view was echoed by numerous other government officials and financial journalists from around the world. Other senior policy makers and journalists suggested the phrase "currency war" overstated the extent of hostility. With a few exceptions such as Mantega, even commentators who agreed that there was a currency war in 2010 generally concluded that it had fizzled out in mid-2011.
States engaging in competitive devaluation since 2010 have used a mix of policy tools, including direct government intervention, the imposition of capital controls, and, indirectly, quantitative easing. While many countries experienced undesirable upward pressure on their exchange rates and took part in the on-going arguments, the most notable dimension of the 2010-11 conflict was the rhetorical conflict between the United States and China over the valuation of the yuan. In January 2013, measures announced by Japan which were expected to devalue its currency sparked concern of a possible second 21st century currency war breaking out, this time with the principal source of tension being not China versus the US, but Japan versus the Eurozone. By late February, concerns of a new outbreak of currency war had been allayed after statements from the G7 and G20 group of nations made commitments to avoid competitive devaluation.
- Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.
2011
- (Rickards, 2011) ⇒ James Rickards. (2011). “Currency Wars: The Making of the Next Global Crisis." Penguin Group US. ISBN:110155889X
- QUOTE: Today we are engaged in a new currency war, and this time the consequences will be far worse than those that confronted Nixon.
Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries' stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence. Left unchecked, the next currency war could lead to a crisis worse than the panic of 2008.
Currency wars have happened before
- QUOTE: Today we are engaged in a new currency war, and this time the consequences will be far worse than those that confronted Nixon.