Is There a Global Currency War?
Abstract
The main aim of this article is to identify factors influencing the direction of change in exchange rates and to assess whether it is justifiable to use the term “currency wars” to describe such activities. The main forms of such “currency wars” in contemporary global economy have been characterized and their impact on financial markets and national economies has been analyzed.
The method chosen for verification of the hypothesis is the critical analysis of existing literature regarding currency wars. The article also takes advantage of the experiences connected with exchange rate fluctuations in several developed and developing countries in the years 2000-2014. The cases subjected to analysis include changes in currency markets in the USA, Eurozone, Great Britain, Switzerland, Japan, and China.
Both parts of the hypothesis have been confirmed. In the conditions of free capital flow, emerging markets and their financial markets are especially vulnerable to the introduction and removal of tools in the framework of a currency war. It is difficult not to notice that China, the biggest trade partner and the regional competitor to Japan, did not protest publicly against the policy of weakening the yen. On the other hand, one should underline that one should not expect protests from the country which pursues a similar strategy, albeit by means of other instruments and tools.
Only the biggest central banks can afford to participate in a currency war, which might provide transient advantages, whereas emerging markets are on the losing side, both in the period of implementation of currency war tools and in the period of their removal.
The paper adds to the literature by combining concepts and presenting them as one multidimensional problem..
Keywords
currency wars, financial markets, depreciation
Author Biography
Robert W. Włodarczyk
Associate professor at the Department of Theory of Economics, Cracow University of Economics. Master's degree in economics from Cracow University of Economics) in 1999; PhD in economics from Cracow University of Economics in 2006; Dr hab. in economics from Cracow University of Economics in 2014.
References
- Angeloni, I., Benassy-Quere, A., Carton, B., Darvas, Z., Destais, Ch., Pisani-Ferry, J., Sapir, A., & Vallee, S. (2011). Global currencies for tomorrow: a European perspective, Bruegel Blueprint Series/CEPII Research Reports, Volume XIII, Paris.
- Bengui, J. (2011). Macro-prudential policy coordination and global regulatory spillovers, Manuscript, University of Maryland.
- Bergsten, C.F. (2013). Currency Wars, The Economy of The United States and Reform of The International Monetary System, Stavros Niarchos Foundation Lecture, May 16.
- Brahmbhatt, M., Canuto, O., & Ghosh, S. (2010). Currency Wars Yesterday and Today. World Bank, Washington, DC. World Bank. https://openknowledge.worldbank.org/handle/10986/ 10116.
- Darvas, Z., & Piasni-Ferry, J. (2010). The threat of "currency wars": A European perspective. Working Paper. BCE Matematikai Közgazdaságtan és Gazdaságelemzés tanszék, Budapest.
- Eichengreen, B. (2013). Currency War or International Policy Coordination?, University of California, Berkeley.
- Gagnon, J.E. (2013). Currency Wars. The Milken Institute Review, 15(1), 47-55.
- Gros, D. (2010). Currency Wars?. Intereconomics, 6, 338-339.
- Jach, K. (2013). The concept of currency wars in the global economy. Observations of the renminbi, american dollar and euro. Horyzonty Polityki, 4(7), 175-191.
- Korinek, A. (2012). Capital Controls and Currency Wars, Manuscript, University of Maryland.
- McKinnon, R., & Liu, Z. (2013). Modern Currency Wars: The United States versus Japan, ADBI Working Paper Series, No. 437, October, Asian Development Bank Institute.
- Persson, T., & Tabellini, G. (1995). Double-edged incentives: Institutions and policy coordination, Handbook of Development Economics. Elsevier.