Many financial experts have noted that a global currency war has broken out, as nations seek to devalue their currencies to spur exports and thereby boost their sluggish economies.
But the war lacks one major participant — the United States. The Federal Reserve and Treasury Department have been content to let the dollar rise against foreign currencies.
The greenback hit a six-year high against the yen and a two-year peak against the euro last week.
While a strong dollar hampers our exports and lessens the profits U.S. companies when they convert overseas revenue into dollars, it encourages foreigners to invest here and lowers import prices.
"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."
"This is a currency war where stealing inflation rather than growth is the goal," economists at HSBC wrote in a report, The Times reported. The question, they said, "is whether the U.S. economy can generate sufficient inflation internally to tolerate the deflationary impact of a stronger dollar."
Meanwhile, economist Nouriel Roubini of New York University is concerned about the possibility of a global financial crisis.
Writing on
Project Syndicate, he notes that financial markets have largely ignored the geopolitical turmoil coursing through the world this year. That reaction makes sense, he says. But the good times could easily come to an end.
"While global markets arguably have been rationally complacent, financial contagion cannot be ruled out," Roubini noted.
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