The Currency Risk
Business Today|August 26, 2018

INDIA’S MACROECONOMIC PARAMETERS ARE SLIDING AT A TIME WHEN THE WORLD IS STARING AT A FULL-BLOWN TRADE AND CURRENCY WAR.

Anand Adhikari
The Currency Risk

A currency war, fought by one country through competitive devaluations of its currency against others, is one of the most destructive and feared outcomes in international economics… whether prolonged or acute, these and other currency crises are associated with stagnation, inflation, austerity, financial panic and other painful outcomes. Nothing positive ever comes from a currency war.” - Excerpted from the book Currency Wars: The Making Of The Next Global Crises by James Rickards.

Three years after the global financial meltdown of 2008, investment banker James Rickards penned his book on the new battleground of future wars amongst the economic superpowers. It was not nuclear or chemical, but financial war. His subject future ‘Currency Wars’ is very apt in today’s context. The world actually fears one between the two economic superpowers.

Rickards linked the currency wars as a subject of national importance and security and not just a subject of discussion for economists and investors. Call it political compulsions, or ground reality, US President Donald Trump has been accusing its trading partners– especially China and the European Union – of artificially depreciating their currency to render their goods more attractive in the US.

Recent trade tariffs by the US in steel and aluminium has seen China react with similar levies on US exports. Both are preparing their next lists to fire at each other. The trade war is already turning into a currency war where Chinese currency saw a sharp depreciation of around 8 per cent. This may be a Chinese tactic to neutralise the impact of higher tariffs for its exported goods in US with a depreciated currency. “Chinese currency is dropping like a rock,” said Trump, advocating a weak dollar to gain competitiveness. Has the currency war already begun?

Geopolitical Tensions

This story is from the August 26, 2018 edition of Business Today.

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This story is from the August 26, 2018 edition of Business Today.

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