Everything You Need to Know About Currency Wars
Everything You Need to Know About Currency Wars by Craig Wilson
Currency wars can best be defined as a “competitive devaluation” of a national currency.
Think of currency wars as the purest form of competitive devaluation for financial warfare purposes.
Under such conditions the value of currency can be a “make or break” for a national economy. A currency that is too high can push down export demands. If it is too low, it could cause imports to be too expensive and cause higher inflation rates.
The International Monetary Fund (IMF) defined these actions in 1976 when it revised its charter to warn of policymakers “manipulating exchange rates…to gain an unfair competitive advantage over other members.”
The objective of currency wars are to boost national exports through gaining advantage of cheaper goods compared to foreign competition. If another country does not match in currency devaluations, then exports from the non-actor will be negatively impacted.
The currency at the center of global currency wars is the U.S dollar. The dollar continues to face competitive devaluation that plays out in the story of lower prices, avoidance of U.S dollar paper assets and varying economic policy.
By understanding the origin of currency wars, exactly how they undermine effective policy and what the future may hold can leave you and your money better positioned for the future.
History of Currency Wars
At the onset of the great depression that hit western industrialized countries starting in 1929, rampant unemployment continued to compound problems in the international financial system.
The British empire, a country once at the center of this industrial boom, was ailing. Following a German devaluation from gold at the beginning of 1931, the British pound sterling and its economy were being hammered with economic shock. While the move from the German central bank was speculative in devaluation, it was one that would have dire consequences.