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War and exchange rate valuation

Author

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  • Christopher E.S. Warburton

    (Department of Economics, John Jay College of Criminal Justice, New York, NY, USA)

Abstract

This article investigates the extent to which the dominance of the United States (U.S.) dollar as an international currency has been contingent on American diplomacy rather than the prosecution of expensive wars. Four wars are examined, the Korean War (1950-1953), the Vietnam War (1964-1975), the Persian Gulf War (1990-1991), and the Iraq War (2003-present). The historical performance of the dollar is examined in times of war and peace, and the Box-Jenkins forecasting algorithm is employed to make a short-term projection of the dollar coinciding with the Iraq war. The price of gold is used as a measure of the value of the U.S. dollar and investor confidence in the dollar during times of war and peace. The empirical evidence shows a short-term depreciation of the U.S. dollar coinciding with the Iraq War, which is not atypical of the value of the U.S. dollar in a time of war. Problems with the value of the U.S. dollar in times of war lead to the exploration of alternative forms of money, which if very successful, can erode the continued dominance of the U.S. dollar as an international currency.

Suggested Citation

  • Christopher E.S. Warburton, 2009. "War and exchange rate valuation," Economics of Peace and Security Journal, EPS Publishing, vol. 4(1), pages 62-69, January.
    • Handle: RePEc:epc:journl:v:4:y:2009:i:1:p:62-69
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    File URL: http://www.epsjournal.org.uk/index.php/EPSJ/article/view/91
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    Cited by:

    1. C.E.S. WARBURTON, Ph.D., 2022. "How Currencies Crash And Die: Wars And Currency Valuation," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 22(2), pages 49-66.

    More about this item

    Keywords

    Currency valuation; forecasting; optimum currency areas; war;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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