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Is There a Global Currency War?

Author

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  • Robert W. Włodarczyk

    (Cracow University of Economics)

Abstract

The main aim of this article is to identify factors influencing the direction of change in exchange rates and to assess whether it is justifiable to use the term “currency wars” to describe such activities. The mainforms of such “currency wars” in contemporary global economy have been characterized and their impact on financial markets and national economies has been analyzed. The method chosen for verification of the hypothesisis the critical analysis of existing literature regarding currency wars. The article also takes advantage of the experiences connected with exchange rate fluctuations in several developed and developing countries in the years 2000-2014. The cases subjected to analysis include changes in currency markets in the USA, Eurozone, Great Britain, Switzerland, Japan, and China. Both parts of the hypothesis have been confirmed. In the conditions of free capital flow, emerging markets and their financial marketsare especially vulnerable to the introduction and removal of tools in the frameworkof a currency war. It is difficult not to notice that China, the biggest trade partner and the regional competitor to Japan, did not protest publicly against the policy of weakening the yen. On the other hand, one should underline that one should not expect protests from the country which pursues a similar strategy, albeit by means of other instruments and tools. Only the biggest central banks can afford to participate in a currency war, which might provide transient advantages, whereas emerging markets are on the losing side, both in the period of implementation of currency war tools and in the period of their removal. The paper adds to the literature by combining concepts and presenting them as one multidimensional problem.

Suggested Citation

  • Robert W. Włodarczyk, 2014. "Is There a Global Currency War?," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship at the Cracow University of Economics., vol. 2(2), pages 21-30.
  • Handle: RePEc:krk:eberjl:v:2:y:2014:i:2:p:21-30
    as

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    File URL: http://eber.uek.krakow.pl/index.php/eber/article/download/41/45
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    References listed on IDEAS

    as
    1. Persson, Torsten & Tabellini, Guido, 1995. "Double-edged incentives: Institutions and policy coordination," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 38, pages 1973-2030, Elsevier.
    2. Jean Pisani-Ferry & Zsolt Darvas, 2010. "The threat of 'currency wars'- a European perspective," Policy Contributions 461, Bruegel.
    3. Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & André Sapir & Shahin Vallée, . "Global currencies for tomorrow- a European perspective," Blueprints, Bruegel, number 592, June.
    4. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
    5. Ronald McKinnon & Zhao Liu, 2013. "Modern Currency Wars : The United States versus Japan," Finance Working Papers 23714, East Asian Bureau of Economic Research.
    6. Brahmbhatt, Milan & Canuto, Otaviano & Ghosh, Swati, 2010. "Currency Wars Yesterday and Today," World Bank - Economic Premise, The World Bank, issue 43, pages 1-6, December.
    7. Richard Portes, 2012. "Monetary Policies and Exchange Rates at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s1), pages 157-163, February.
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    More about this item

    Keywords

    currency wars; financial markets; depreciation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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