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How Currencies Crash And Die: Wars And Currency Valuation

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  • C.E.S. WARBURTON, Ph.D.

Abstract

This paper examines the preconditions for currency crashes and demonetization. Though the preconditions for currency crashes and demonetization are variegated, the paper emphasizes the close relationship between wars and demonetization. Bayesian analysis and more than ten centuries of information suggest that there is a thirty-five-percent chance (maximum likelihood) that wars could lead to hyperinflation and demonetization. The paper concludes that economic repression is greater than military might and that wars should be considered to be an outdated instrument of foreign policy. Specifically, nations with ambitions to preserve their currencies and increase national income (or aggregate welfare) should avoid wars at all cost.

Suggested Citation

  • C.E.S. WARBURTON, Ph.D., 2022. "How Currencies Crash And Die: Wars And Currency Valuation," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 22(2), pages 49-66.
    • Handle: RePEc:eaa:aeinde:v:22:y:2022:i:2_3
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    References listed on IDEAS

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    1. Christopher E.S. WARBURTON, 2016. "The International Law and Economics of Coercive Diplomacy: Macroeconomic Effects and Empirical Findings," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 16(1), pages 35-52.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
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    4. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
    5. Sidney S. Alexander, 1952. "Effects of a Devaluation on a Trade Balance," IMF Staff Papers, Palgrave Macmillan, vol. 2(2), pages 263-278, April.
    6. Christopher E.S. Warburton, 2009. "War and exchange rate valuation," Economics of Peace and Security Journal, EPS Publishing, vol. 4(1), pages 62-69, January.
    7. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
    8. Salvatore, Dominick & Dean, James W. & Willett, Thomas D. (ed.), 2003. "The Dollarization Debate," OUP Catalogue, Oxford University Press, number 9780195155365, Decembrie.
    9. Vines,David & Gilbert,Christopher L. (ed.), 2004. "The IMF and its Critics," Cambridge Books, Cambridge University Press, number 9780521821544, June.
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    More about this item

    Keywords

    Currency crash;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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