Currency war

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A currency war (from English currency war ) or a competitive devaluation (from English competitive devaluation ) is an economic conflict in which economies try to devalue their currency and thereby improve their respective international competitiveness at the expense of the other economies (a so-called Beggar- thy-neighbor policy ). The devaluation of one's own currency should mean that the products produced domestically can be sold more cheaply abroad. As a result, exports are expected to increase, production to be boosted and unemployment to fall. Retaliation by the other participating economies is characteristic of a currency war, which can lead to instability in the world economy. Therefore, according to the American economist Joseph Stiglitz, there is a risk that all participating economies will end up being worse off.

background

Current account surpluses (green) and current account deficits (red) in the period 1980–2008 in billion US $

When a country devalues ​​the nominal exchange rate of its currency (e.g. through foreign exchange market intervention ), exports become cheaper in real terms, while imports become more expensive in real terms. As a result, there is a trade surplus ( current account surplus ), gross national income increases and unemployment decreases. The effect on trading partners is exactly the opposite: there is a foreign trade deficit, gross national income is weaker and unemployment is rising.

A competitive devaluation is usually unpopular among the population, because a typical side effect is an at least short-term decline in the standard of living, as imports and foreign travel become relatively more expensive. A competitive devaluation of one's own currency also leads to a real increase in the value of foreign currency loans ; if the debt level in foreign currency is high, this can lead to a debt crisis. However, increasing exports result in additional income for private households; experience shows that part of this additional income is spent on buying goods or services, which creates new income ( export multiplier ).

Competitive devaluation is a relatively frequently used tool in economic policy. For a single country, the strategy can be extremely successful as long as the trading partners don't fight back. If the trading partner countries also use the means of competitive devaluation, then the devaluations cancel each other out; in principle, no country has an advantage or disadvantage in terms of foreign trade. However, such a currency war creates uncertainty among companies and investors, which harms international trade and discourages investors. The indirect effect of a currency war is negative for all countries.

history

Currency devaluation & protectionism

Currency war of the 1930s

The first currency war came after the general departure from the gold standard in the 1930s. Great Britain devalued the pound sterling by 25% in 1931, with many countries following suit. The German Reich did not follow the example, but was soon forced to manage foreign currency and hardly participated in world trade. The United States undertook a massive competitive devaluation in 1933, later followed by countries like Belgium and France. The currency war was ended in the Tripartite Agreement of 1936.

After World War II, the Bretton Woods system was established to prevent a currency war like the one in the 1930s. The Bretton Woods system collapsed in 1973.

Asian currency manipulation

Both China and Japan keep the exchange rates of the national currencies yuan and yen low through foreign exchange market intervention in order to ensure the competitiveness of their own product range on the international market. As a result, there were chronic export surpluses and high foreign exchange reserves in US dollars (see Bretton Woods II regime ).

Examples since 2010

In 2010, Guido Mantega , the Brazilian finance minister, claimed the outbreak of a global currency war. Whether there was or is a currency war is or is discussed in the economic literature. The Leipzig economist Gunther Schnabl said in 2011 that a currency war between the USA and China had prevented a recovery after the financial crisis of 2008/9 .

Ben Bernanke , chairman of the US Federal Reserve Fed from 2006 to early 2014, announced in September 2012, the Fed will for 85 billion US dollars mortgage bonds and government securities buy monthly - for as long, "to improve the prospects for the labor market". Mantega criticized this policy as protectionist ; it will provoke currency wars with potentially devastating consequences for the rest of the world.

In January 2013, Japan's “aggressive monetary policy” was accused of promoting a currency war.

In January 2015, Mario Draghi , President of the ECB, announced that the ECB or individual central banks in the euro area would buy bonds (including government bonds) worth up to 60 billion euros a month from March 2015. → see Outright Monetary Transactions , Quantitative Easing

Web links

Individual evidence

  1. ↑ Joseph Stiglitz : A currency war has no winners: For the global economy to revive, countries need to co-operate rather than devalue their currencies. On: guardian.co.uk, November 1, 2010.
  2. ^ A b Henry Thompson: International Economics: Global Markets and Competition. World Scientific Publishing, 2011, ISBN 978-981-4307-02-4 , pp. 393, 394.
  3. ^ Bernhard Winkler: The political economy of the European Monetary Union. In: Alan W. Cafruny, Patrick Peters: The Union and the World: The Political Economy of a Common European Foreign Policy. Kluwer Law International, 1998, ISBN 90-411-0500-X , p. 184.
  4. ^ Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life, 5th edition, Mannheim, Bibliographisches Institut, 2013, license edition Bonn: Federal Agency for Civic Education 2013, keyword export multiplier .
  5. ^ Barry Eichengreen : Elusive Stability: Essays in the History of International Finance, 1919-1939. Cambridge University Press, 1990, ISBN 0-521-36538-4 , pp. 145-147.
  6. ^ Paul JJ Welfens: Foundations of economic policy. 2nd Edition. 2005, ISBN 3-540-21212-4 , p. 235.
  7. ↑ Gunther Schnabl: Structural distortions in the currency war . In: Economic Service . tape 91 , no. 2 , 2011, p. 104 , doi : 10.1007 / s10273-011-1189-7 .
  8. ↑ Interview of the Financial Times , see sueddeutsche.de September 22, 2012: Curse of cheap money
  9. ↑ Jens Weidmann according to Handelsblatt January 23, 2013 Weidmann worries about Japan.
  10. ↑ Martin Hock: When will Japan run out of debt? on: faz.net , January 30, 2013.
  11. ↑ Martin Lanz: Much ado about the "currency war". on: nzz.ch , January 31, 2013.
  12. ↑ FAZ.net January 23, 2015 / Philip Plickert : What is going on behind the doors of the Governing Council