In the 1930s, Great Britain, France and the United States tried to stimulate their economies by competitively devaluing their currency in what’s now known as “a currency war.”
With world economies once again suffering from a downturn, many market watchers have been weighing in recently on whether we’re in the midst of another such war, where countries aim to help their export sectors and raise import prices by devaluing their currencies.
What’s my take? I agree with the head of the International Monetary Fund who back in February said that talk of a currency war is “overblown.”
While the currencies of many developed countries have been weakening in recent years, this is not due to countries maliciously trying to drive down their currencies relative to those of targeted neighbors. Rather, it’s merely a byproduct of central banks in the United States, the United Kingdom and Europe going to extraordinary lengths to spur economic growth and in the case of Japan, central bank efforts to exit a deflationary spiral.