The concept of â€˜currency warsâ€™ has come into popular use in recent years. This article examines various meanings of the phrase and its historical antecedents. It goes on to discuss why currency wars have become the focus of attention and the economic policy weapons that may be used to conduct such wars. It draws attention to the collateral economic damage that may be caused by unleashing these weapons both for the individual countries that use them and for the world economy. The article concludes that, while there may have been occasional currency battles or skirmishes, the empirical evidence does not support the claim that there is widespread currency warfare. However, currency misalignment does exist and correcting it would help induce the international adjustment needed to reduce the global economic imbalances that threaten international financial stability. The problem is to find effective institutional arrangements for encouraging this to happen. Current proposals under discussion that envisage an enhanced role for the IMF and the G20 seem unlikely to be very successful.
Volume (Year): 12 (2011)
Issue (Month): 4 (October)
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