The Return Of Global Currency Wars
(5 min read)
A strong dollar can be a problem for the global economy (especially highly indebted emerging markets). But on the other end of the spectrum, no country wants to foot the cost of a strong currency right now. As the global economy moves from crisis to recovery mode, this tension could lead to a new chapter in the Cold Currency War that began in the aftermath of the Global Financial Crisis.
Which Countries Are Most Likely to Engage in a Cold Currency War?
Before diving into the ‘how’, we first explore the ‘who’ and the ‘why’ – in particular, which countries will be under more pressure to stem domestic currency strength in the coming months. In theory, exporting nations – especially those more proportionately reliant on trade growth in any future economic recovery – will be particularly wary of the challenges a stronger currency poses to domestic exporters. Moreover, with most countries facing severe deflationary risks, almost no central bank will want an overly strong currency in the next 3-6 months as it will only push them further away from their inflation targets.
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