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Are We on the Verge of a Currency War?

Jan. 16, 2013 6:14pm
Russia, Others Warns of Coming Global Currency War

Generals (l to r): First deputy chairman of Russia’s central bank Alexei Ulyukayev, Luxembourg Prime Minister and the president of the group of euro-zone finance ministers Jean-Claude Juncker, Federal Reserve Bank of St. Louis President James Bullard, and Bank of England Governor Mervyn King. (Images courtesy Getty Images).

Despite global finance ministers promising in 2010 that they wouldn’t engage in “competitive devaluation,” it looks like the world is on the brink of a major currency war, or so says Alexei Ulyukayev, first deputy chairman of Russia’s central bank, according to Bloomberg.

“Japan is weakening the yen and other countries may follow,” Ulyukayev warned today at a conference in Moscow, adding later that the world is headed for a “currency war.”

Unfortunately, Ulyukayev isn’t the only one with currency concerns. Others have weighed in on the issue :

  • Luxembourg Prime Minister Jean-Claude Juncker recently noted the “dangerously high” value of the euro.
  • Norway and Sweden have expressed concern over currencies exchange-rates.
  • The Bank of Korea has threatened “an active response” to current rates.
  • Federal Reserve Bank of St. Louis President James Bullard said he’s “a little disturbed” by Japan’s actions and the risk of so-called “beggar-thy-neighbor” policies.
  • Bank of England Governor Mervyn King said last week that he is worried “we’ll see the growth of actively managed exchange rates.”

In short, there’s a “degree of disquiet in the global policy-making community,” as Reserve Bank of Australia Governor Glenn Stevens puts it, and some think it could evolve into something far more dangerous for the world economy.

This “will go down as the first day European policy makers fired a shot in the 2013 currency war,” Chris Turner, head of foreign-exchange strategy at ING Groep NV in London, told Bloomberg.

But let’s back up for a moment and try to wrap our heads around what’s going on here. Why would G-20 leaders inch toward “competitive devaluation”?

“Currency devaluation makes a country’s goods and services more affordable to the rest of the world,” Elliott Orsillo, CFA, co-founder, and portfolio manager at Season Investments, LLC tells TheBlaze.

“Therefore, if one country can weaken their currency versus other trading partners, it can give itself an economic boost from the increased demand for their cheap goods and services,” he adds.

Of course, there’s a downside to this: If one country can benefit from competitive devaluation, you better believe others will want in on the action. Hence, currency wars.

“When one country tries to get the upper hand by weakening its currency (like the U.S. has done with all the QE [quantitative easing] programs and Japan is starting to do with their inflation target), it forces the hand of other countries that want to remain competitive in the global economy,” Orsillo explains.

“Currency wars create a ‘race to the bottom’ as each country tries to weaken their currency by more than everyone else,” he adds.

As of this writing, Japan is considered by many to be the “worst offender” as it actively intervenes to depress the yen.

“If Japan continues to pursue a softer currency, reciprocal devaluations would hurt the global economy,” Bloomberg reports, citing Russia’s Ulyukayev. “That echoes recent concern from other international policy chiefs.”

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Featured image courtesy Kiyoshi Ota/Bloomberg. Updated.

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Comments (30)

  • riddleman
    Posted on January 17, 2013 at 8:13pm

    Just curious, how will this “new world order” benefit Soros?

    Report this comment

    riddleman  
  • Advection
    Posted on January 17, 2013 at 1:34am

    Germany is preparing by taking physical posession of hundreds of tons of their gold. They don’t trust the USA anymore. I wonder why?

    http://www.forbes.com/sites/afontevecchia/2013/01/16/germany-repatriating-gold-from-ny-paris-in-case-of-a-currency-crisis/

    Report this comment

    Advection  
  • KidCharlemagne
    Posted on January 16, 2013 at 11:12pm

    We’ve been in a perpetual currency for the past 41 years:

    The Nixon Shock, August 15, 1971

    Report this comment

    KidCharlemagne  
    • Advection
      Posted on January 17, 2013 at 1:37am

      It started with Wilson and the Federal Reserve Bank’s fake money, then FDR seized gold and put the nation on a fake gold standard, then Nixon finally ended that.

      Report this comment

      Advection  
  • UNALIEN
    Posted on January 16, 2013 at 9:45pm

    The 64 trillion dollar question, in a global currency war aka devaluation and race to the bottom..

    With all currencies devaluing simultaneously,, what do you devalue against?

    GOLD…

    Report this comment

    UNALIEN  
  • media-bias-steals-elections
    Posted on January 16, 2013 at 8:10pm

    They know there is going to be a slow contraction, that might even require nations to become more self sufficient, instead of a global economy there will be spurts of economic activity here and there to drive new ideas, which will then be copied and devalued until the next big idea comes, and the cycle will change like the weather?

    Report this comment

    media-bias-steals-elections  
  • progressiveslayer
    Posted on January 16, 2013 at 7:23pm

    First the Marxist in chief has to trash the dollar and he’s doing a pretty good job of that. Then the dollar has to lose reserve currency status,that’s coming soon. Barry’s plan is coming together quite nicely and when he finishes off our economy he’ll be orgasmic.

    Report this comment

    progressiveslayer  
  • Xiccarph
    Posted on January 16, 2013 at 7:18pm

    Great summary of what’s coming and why:

    http://w3.newsmax.com/newsletters/uwr/video.cfm

    Report this comment

    Xiccarph  
  • Xiccarph
    Posted on January 16, 2013 at 7:14pm

    This has been in the news for quite some time. Investment experts and economists who offer newsletters have detailed the growth and arrival of the next currency war. Everyone is aware that the dollar is becoming passe. For many countries, it is no longer used as the int’l trading currency. Agreements between trading partners around the world who accept their own currencies in lieu of the dollar is growing. Chief among them are China, Russia, Japan and Brazil, among others. A new reserve currency is coming, likely a basket of currencies formed by China, Russia, Japan, Brazil and maybe India. Face it, the world wants to distance themselves from the US Dollar, and that time is nearing very quickly. China is buying gold and other commodities by the tons. Their goal, many think, is to establish a gold based currency and make China the #1 member of any new reserve currency basket. To make matters worse, our wonderful neo-communist government seems to be doing everything it can to enable this change. Stacking debt upon debt, regulating and taxing our businesses into outsourcing. Obama’s agenda is to make us just another country at the table of nations, no better, no poorer, no stronger. He is enabling the coming currency devaluations to be easier to do and more destructive. We will not be the winner in such a war, and Americans will see inflation and economic collapse that makes the recent “recessions” look like a super boom. Depressions will be global. Look at history!

    Report this comment

    Xiccarph  
    • jman-6
      Posted on January 17, 2013 at 12:19pm

      The main reason there going away from the dollar is there is no one superpower to govern the world. They have enough economic might now so they stop loaning us money and viola! The US can’t afford to respond to every crises! Enter stage right- 10 Nation Powers! Sound familiar?

      Report this comment

      jman-6  
  • johnpaulkuchtajr
    Posted on January 16, 2013 at 6:57pm

    @Kingcanon

    If the leadership of this country wasn’t so corrupt, we could right this great ship with a couple of moves:

    1. Allow the nearly $15 trillion dollars owned by US-based corporations sitting overseas back into this country on a scheduled basis controlled by the Treasury Secretary. The proviso is that it must be used to build new capital structure and it has to be brought back on a schedule. Imagine injecting $1 trillion dollars a month for 15 months into this economy. The US economy would take-off like a rocket ship.

    2. Scrap the corrupt IRS regulations and institute the FAIR TAX. Can you imagine the growth ignited by entrepreneurs and wealthy indiviuals flocking to this country if there was no personal or corporate income tax, just a national sales tax collected at the point of sale? The rule is “If you stay in this country, pay for this country!” The FAIR TAX catches the folks flying above the radar like John “I served in Viet Nam” Kerry and those flying under the radar, like the illegals, to all pay their share.

    It can be done, but the political class likes things just the way they are, with them controlling an out-of-control system that is leading to certain ruin.

    “Remember benghazi and ALL the Traitors!”

    Report this comment

    johnpaulkuchtajr  
  • soybomb315_II
    Posted on January 16, 2013 at 6:56pm

    big corporations love a weak currency because it means their exports go up and the imports (competitors) go down. Of course, a weak currency is bad for the average american family….But it is the companies that control the government – not the people. And the elites love weak currency because they have free reign to print more money and run deficits….This is not a democrat or republican thing, they are all guilty

    Report this comment

    soybomb315_II  
  • liberalsblamehonestfolk
    Posted on January 16, 2013 at 6:52pm

    Hide your food stores, guns, ammo and supplies before they come street by street for your stuff.

    Report this comment

    liberalsblamehonestfolk  
    • krjones
      Posted on January 16, 2013 at 7:02pm

      Glen said you have to hand your guns over.

      Report this comment

      krjones  
    • mrunner
      Posted on January 16, 2013 at 7:32pm

      @jones – Not quite what I heard Glen say. What I thought I heard him say is tell them that they can’t have your guns they will have to arrest you. I guess the end result would still be the same…I agree with so much of what Glen says- but not this time.

      Report this comment

      mrunner  
    • krjones
      Posted on January 16, 2013 at 8:10pm

      @runner, I stand corrected sir. End of the day it means the same thing.

      Report this comment

      krjones  
    • intrepidorator
      Posted on January 17, 2013 at 1:22am

      Hopefully everyone has some guns that no one else knows about, they can’t take what they don’t know you have.

      Report this comment

      intrepidorator  
    • SocialistSlayer
      Posted on January 17, 2013 at 2:25pm

      Prepare your families — store rice , beans and dehydrated food. Plant a garden. Plant fruit and Nut trees in your yard. Be prepared for the worst – hope for the best !

      Report this comment

      SocialistSlayer  
  • soybomb315_II
    Posted on January 16, 2013 at 6:42pm

    “Are we on The Verge of a Currency War?”

    What is this!? A ron paul alex jones kook conspiracy?

    Report this comment

    soybomb315_II  
    • krjones
      Posted on January 16, 2013 at 6:57pm

      My thoughts exactly! We can’t have these kooks make our government look badly. messing with our governments reputation! Enough blaze! Stop with all the crazy stories. You are destroying our country!
      remember to sitdown, shut up, give them your gund, and head off to camp quietly!

      Report this comment

      krjones  
    • Walkabout
      Posted on January 16, 2013 at 7:00pm

      No it is a replay of the Stock Market Crash of 1929 (2009), Currency Wars (Japan kicked it off), FDR (Obama).

      All we need now is Smoot-Hawley Tariff Act & a World War.

      Lets, see Syria, Afghanistan, Somalia, Central Africa Republic, Mali.

      I have seen one definition of war that has the requirement that at least one government is involved & 1,000 or more people die. Did 1,000 people die from FARC violence in Columbia in the past year? How about Sudan, Iraq & Yemen?

      Report this comment

      Walkabout  
  • TADTAD
    Posted on January 16, 2013 at 6:36pm

    Make no mistake; Foghorn J. Leghorn has come home to roost. By 2015, you’ll think January 2013 was “the good old days.”

    Report this comment

    TADTAD  
  • Snowleopard {gallery of cat folks}
    Posted on January 16, 2013 at 6:23pm

    In a short answer – yes we are on the edge of a currency war.

    What matters now is how Japan continues onward, how China responds and how the next set of nations answer the challenge presented unto their own currencies.

    Report this comment

    Snowleopard {gallery of cat folks}  
  • KingCanon
    Posted on January 16, 2013 at 6:20pm

    Would a ONE world currency perhaps be the solution?

    Report this comment

    KingCanon  

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