Economic Warfare!

The current economic crisis appears to be coming to an end but the mood is still grim as was reflected at the fall meetings of the International Monetary Fund and World Bank in Washington DC. As the economy begins crawling in the right direction, countries have started vying for any way to increase their portion of the coming economic recovery and potential success. But how do countries go about this? Trade treaties, tariffs or similar examples may initially come to mind but how can the value of currency used as a weapon?

The fact is, lowering the value of a nation’s currency can directly translate to increased demand for the countries goods. At first this might catch you off guard; but to understand you can’t think of this as inflation. Instead if a country can lower the value of its currency to the outside world but domestically reduce prices as well, then the populace is no worse off but goods the country produces are cheaper.

For example, if the of Indian rupee were sold on the foreign exchange markets or similarly manipulated to decrease in value while the Chinese Yuan increased then the exact same car made in India would cost less than one made in China. If India were self-sufficient so that the price of goods did not increase, then the Indian people would have the same cost of living while the goods they produce would increase significantly in demand and generate greater revenue.

Today, several countries primarily including China, Korea, Taiwan, Japan, and Switzerland have used such means to depreciate or otherwise alter the value of their currency. The shortcomings of such practices are obvious for they defy the principles of currency, run contrary to capitalist beliefs (government intervention), give some nations an unjustifiable advantage, promote disunity in a time when it is needed more than ever and has the potential to cause trade or real warfare.