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Financial Times writer John Plender to the list of those who believe a currency war has broken out.
"Competitive devaluations are back in fashion — expect more currency-war rhetoric in the months ahead," he writes. "The implications for investors will be profound, as more countries engage in a 1930s-style zero-sum game to win a bigger share of anemic global growth."
Japan began the devaluation race in 2012, Plender says. Interestingly enough, despite the dollar's 38 percent jump against the yen over the past two years, Japanese exports have barely risen, he notes.
"That has not prevented the country from resorting to yen devaluation since July this year," he says. And that "puts pressure on other countries’ exporters and encourages them to join in the beggar-my-neighbor game."
Thus has the European Central Bank joined the fray, Plender says. The ECB has aggressively cut interest rates and plans to purchase asset-backed securities.
Just two weeks ago, the dollar hit a six-year high against the yen and a two-year high against the euro.
Of course that means the United States is staying out of the currency war.
"You’re seeing American officials turn a blind eye to [European Central Bank President] Mario Draghi talking down the euro, and turn a blind eye to interventions by the Chinese, because in both cases they’re making the judgment that having a stabilized situation and decent growth prospects in these countries is far more important," Adam Posen, president of the Peterson Institute for International Economics, told The New York Times.
"I tend to agree with that."
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