Currency wars: the making of the next global crisis / James Rickards. p. cm. currency war that had destroyed faith in the U.S. dollar, and the president had. world by launching the opening salvo in what he called a “currency war.” Man- wars,” Carnegie economists wrote a series of short articles, collected in this. Editorial Reviews. Review. “One of the scariest books I've read this year. The picture that Currency Wars: The Making of the Next Global Crisis - Kindle edition by James Rickards. Download it once and read it on your Kindle device, PC.
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PDF | The main aim of this article is to identify factors influencing the direction of The mainforms of such “currency wars” in contemporary global economy. During a war between two nations, one can imagine a nation printing currency of the rival illegally to damage her economy; however, Rickards makes an. Currency Wars Summary by James Rickards explains the three currency wars the world has gone through, the third one still ongoing, and.
The gathering met in late of in a secluded research center close Washington, DC, to plot the primary financial war game in US history. The members partitioned into contending groups and scripted locale-specific objectives and political moves.
This game yielded a pivotal disclosure: Even in case of an effective assault on the dollar, the US claims enough gold to survive a financial war.
Currency War I 2. Currency War II 3. Currency War III —. Strategy makers concurred that the US dollar would keep up a settled value relationship to gold, and that nation could hold the American currency as an intermediary for gold reserves. This did not take care of the issues: Cycles of currency devaluations went from nation to nation.
The second global currency war began in as the US government budget wavered under the twofold weight of the Great Society antipoverty program, a domestic social agenda, and the Vietnam War. Like this summary? The euro has changed little from pre- crisis levels, despite its weakness since the outbreak of the sovereign debt crisis. And, frustratingly from the U. Of the 40 largest economies, 25 have seen their currencies depreciate in nominal effective terms from pre-crisis levels.
These include several countries that have vocalized the need to curb supposed appreciation, such as South Korea and India. Only seven countries including Japan and China have seen their currencies appreciate by more than 10 percent since the start of the Great Recession. And real exchange rates in the first three countries are roughly in line with their ten-year pre-crisis averages.
In the other three countries—Brazil, Colombia, and the Czech Republic— currency appreciation may be more problematic. Each of these countries has a modest current account deficit, and their real effective exchange rates have appreciated by 42 percent, 27 percent, and 36 percent, respectively, compared to their ten-year pre-crisis averages.
Appreciation in these countries and in many other successful developing economies has been especially sharp in recent months. However, some of this change is justified: Improved macro fundamentals, better governance, booming commodity exports, and recent oil and gas finds have made Brazil and Colombia more attractive to foreign investors, and the Czech Republic has been one of the more successful transition and EU-accession countries.
Nevertheless, whether the large capital inflows into these countries will be sustained is unclear, since the surge in capital flows may only be beginning, and international interest rates will rise once the crisis abates.
The smaller countries play a significant role in trade, but will certainly not set the tone for international currency relations.
Instead, the four large blocs will determine the behavior of smaller players through their management of currencies and relations with one another. With negative net exports representing less than 4 percent of U. GDP and domestic demand representing percent, policies to stimulate demand should focus on the latter rather than the former. Against a background of slowing growth, the United States needs to resist an early withdrawal of stimulus, but must also reassure investors and trading partners by legislating reforms that reduce spending and increase taxes in the medium term.
In the Euro area, Germany and other core countries must stimulate domestic demand to support the adjustment in the debt-constrained European periphery.
Failure to help the adjustment in competitiveness and fiscal balances in the periphery may one day threaten the survival of the Euro area as currently configured. China has already contributed more to global rebalancing than any other country. Its domestic demand has increased by 41 percent since —, its current account surplus has declined by 5 percent of GDP, and its real exchange rate has appreciated by more than that of any other large country compared to its ten-year pre- crisis average.
But what can be done for avoiding a US — China currency war?
Given the extremely complicated nature of the renminbi RMB exchange rate in a global economic context, the US should undertake a rational cost- benefit analysis instead of threatening sanctions. But this has not significantly improved the US trade deficit, nor has it reduced China's trade surplus.
The driving forces of today's exchange rate have gone far beyond bilateral trade. While the US could experience limited economic gains if any form of sanctions is enacted, the Chinese economy will suffer serious damage. First of all, a surcharge tariff of 20 percent or more on Chinese imports to the US will drive a large proportion of Chinese exports out of the US market, and will significantly reduce external demand.
Finally, as more speculative capital enters China with a bet on RMB appreciation, the problem of an asset bubble in the Chinese economy will worsen and could spiral out of control. In the past 15 years, East Asian economies including Japan, South Korea, Taiwan, Hong Kong and Singapore have moved their assembly lines to Mainland China to take advantage of its cheap labor costs, and they continue to target their exports at the US market.
As a result, these economies have greatly reduced their trade surplus with the US, while China is perceived as having the largest trade surplus.
A trade and currency war between the US and Asia would therefore trigger significant knock-on effects for the region. As China leads the world out of the recession, the Chinese economy has replaced the US economy as the greatest engine of global economic growth. Consequently, a Chinese-US economic war could undermine the faltering global recovery. For example, panic-induced capital holders could dump dollars and download euros, resulting in a substantial appreciation of the euro.
Among other consequences, it would exacerbate the impact of the Greek debt crisis on the EU economy. Faced with continuing global challenges, the US needs China's continued cooperation.
If unilateral action by the US i. Meetings of the G and the multilateral climate change convention, for example, could face immediate barriers because of mishandling by the US of the exchange rate issue.
And how likely is it that this pressure will lead to action? These questions can be answered by an analysis of US domestic politics and the recent diplomatic frictions between the two countries.