Currency Wars
Currency Wars
When we think of war, it is easy to imagine soldiers, guns, tanks and perhaps a bloody chaotic war zone. Then, when we think of trade, exchange rates, foreign exchange, currency and its policies what comes to mind--War? Probably not. We are however, “in the midst of an international currency war…this threatens us because it takes away our competitiveness” (Mantega). A currency war can be defined as a “competitive devaluation, [a] condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their home currency, so as to help their domestic industry…[a] situation where one nation, relying on its strong economic power, buffets its competitors and seizes other nations’ wealth through monetary and foreign exchange policies. It is a form of economic warfare…” (Currency War). To fully understand the currency war we must look at and grasp the concepts of international trade, trade politics and foreign exchange policies, along with some background on currency and financial systems.
International trade is a vital part of our global economy. With the phenomena of globalization, trade has become the cornerstone to our international economic relations and economic integration. Trade is a dated practice that has been used for centuries and will continue be used for years to come. The reason to why we trade is to acquire goods we are not able to produce ourselves. A benefit which trade has allowed is the ability to realize and follow our comparative advantage. The theory of comparative advantage suggests that countries specialize in products and services they produce most efficiently and then buy goods they produce less efficiently. This then, leaves the global economy with a large free trade market, meaning most countries limit or remove all barriers to have a free flow of goods and services. In short, trade lowers prices for goods and services, stimulates economic growth, promotes resource
When we think of war, it is easy to imagine soldiers, guns, tanks and perhaps a bloody chaotic war zone. Then, when we think of trade, exchange rates, foreign exchange, currency and its policies what comes to mind--War? Probably not. We are however, “in the midst of an international currency war…this threatens us because it takes away our competitiveness” (Mantega). A currency war can be defined as a “competitive devaluation, [a] condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their home currency, so as to help their domestic industry…[a] situation where one nation, relying on its strong economic power, buffets its competitors and seizes other nations’ wealth through monetary and foreign exchange policies. It is a form of economic warfare…” (Currency War). To fully understand the currency war we must look at and grasp the concepts of international trade, trade politics and foreign exchange policies, along with some background on currency and financial systems.
International trade is a vital part of our global economy. With the phenomena of globalization, trade has become the cornerstone to our international economic relations and economic integration. Trade is a dated practice that has been used for centuries and will continue be used for years to come. The reason to why we trade is to acquire goods we are not able to produce ourselves. A benefit which trade has allowed is the ability to realize and follow our comparative advantage. The theory of comparative advantage suggests that countries specialize in products and services they produce most efficiently and then buy goods they produce less efficiently. This then, leaves the global economy with a large free trade market, meaning most countries limit or remove all barriers to have a free flow of goods and services. In short, trade lowers prices for goods and services, stimulates economic growth, promotes resource