BRIEFLY -- devaluation done by a country in order to boost its exports. The price of its products will be competitive in relation to other country products. a write up from wikipedia:
Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls, so to does the real price of exports from the country. Imports become more expensive too, so domestic industry, and thus employment, receives a boost in demand both at home and abroad. However, the price increase in imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.
Competitive devaluation has been rare through most of history as countries have generally preferred to maintain a high value for their currency; have been content to allow its value to be set by the markets or have participated in systems of managed exchanges rates. An exception was the episode of currency war which occurred in the 1930s. The period is considered to have been an adverse situation for all concerned, with all participants suffering as unpredictable changes in exchange rates reduced international trade.
According to Guido Mantega, the Brazilian Minister for Finance, a global currency war broke out in 2010. This view was echoed by numerous other financial journalists and government officials from around the world. Other senior policy makers and journalists have suggested the phrase "currency war" overstates the extent of hostility, though they agree that a risk of further escalation exists.
States engaging in competitive devaluation since 2010 have used a mix of policy tools, including direct government intervention, the imposition ofcapital controls, and, indirectly, quantitative easing. While many countries have experienced undesirable upward pressure on their exchange rates and taken part in the on-going arguments, the most notable dimension has been the rhetorical conflict between the United States and China over the valuation of the yuan. The episode which began in the early 21st century is being pursued by different mechanisms than was the case in the 1930s, and opinions among economists have been divided as to whether it will have a net negative effect on the global economy. By April 2011 journalists had began to report that the currency war had subsided; though Guido Mantega has continued to assert that the conflict is still on-going.
Currency war Reviewed by sambasivan srinivasan on 2:53:00 PM Rating: