Nations Scramble to Compete in ‘Currency War’ as China’s Yuan Falls to Five-Year Low
Allan Ajifo / (CC BY 2.0)
China, Europe and Japan are driving down the value of their currencies in order to make their exports more attractive on the global market, leaving millions of workers in associated industries “protected or vulnerable, depending on which side they find themselves,” writes Guardian economics correspondent Phillip Inman.
Governments devalue their currencies to make their goods cheaper and thus increase the volume of their exports. It’s an attempt to shift what economists call the “balance of trade” in a country’s favor, with the intended net effect of increasing a home economy’s size and overall wealth.
Inman continues:
The phrase “currency war” speaks to a seemingly phoney battle between the world’s major trading powers over the price of exports. It has all the attributes of an illusory conflict because no one ever agrees that a genuine dispute has taken place. And as long as everyone denies they have drawn swords to slash their currency to compete with rival powers, talk of a war fizzles and dies.
There is a fringe constituency of analysts who have long argued that, much like the hundred years’ war of intermittent battles between England and France, currency wars make headlines only when there is a lurch in policy, which is the equivalent of deploying archers and unleashing the cavalry.
China’s decision to set its benchmark for the yuan at a five-year low is such a moment. It makes clear what has been true since last August, namely that the Communist leadership believes it needs a low-valued currency to help bail out its ailing export industries. The problem is that everyone wants to use the same trick.
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