CURRENCY WAR

By Vani Kota JyotiRaj Sumanth Biswal Vikas Nishad

Naveen Kumar

CONTENTS:
1. 2. 3. 4. 5. 6. 7. 8. 9. Currency Currency Sign Different Countries Symbols Currency Rates Currency War History War between two Economic Powers Impact on Global scenario Solution

 Currency is the means of purchasing through trade. the metal or paper medium of exchange that is presently used.

CURRENCY SIGN??
A currency symbol is a symbolic representation of type of currency used, mostly designated by the country producing the currency. A currency sign is a graphic symbol often used as a shorthand for a currency's name. Having a currency sign has now become form of status symbol for international currencies.

FEW CURRENCY SYMBOLS..

CURRENCY RATES..
Indian rupee rate in the international market i.e. in different countries the value of Indian rupee. COUNTRY RATE US Dollar Europe pound Japan Yen CURRENCY

0.0221052 0.0168279 1.83239

WHAT IS CURRENCY WAR??

Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their home currency, so as to help their domestic industry.

REASONS FOR DEVALUATION..

Devaluation can be especially attractive as a solution to unemployment when other options like increased public spending are ruled out due to high public debt and also when a country has a balance of payments imbalance which a devaluation would help correct. A reason for preferring devaluation common among emerging economies is that maintaining a relatively low exchange rate helps them build up their foreign exchange reserves, which can protect them against future financial crises.

MECHANISM FOR
DEVALUATION..
Each country has its own options concerning ways to devalue its currency, though the methods available depend on the arrangement of the International monetary system that prevails at the time they wish to devalue. The other method is for authorities simply to talk down the value of their currency, by hinting at future action that will discourage speculators from betting on a future rise, though this method sometimes has little discernible effect.

HISTORY..
The currency war across the globe was from 18th century. A notable example is the substantial devaluations which occurred during the Napoleonic wars. When nations wished to compete economically they typically practiced mercantilism this still involved competing to boost exports while limiting imports, but not by means of devaluation

 From the 19th century, and especially in Great Britain which for much of the period was the world's largest economy, mercantilism became increasingly discredited by the rival theory of free trade, which held that the best way to encourage prosperity would be to allow trade to occur free of government imposed controls. The intrinsic value of money became increasingly formalized with a gold standard being widely adopted between about 18701914

Currency wars during the Great depression

During the Great Depression of the 1930s, most countries abandoned the gold standard, resulting in currencies that no longer had intrinsic value.

The currency war of the 1930s is generally considered to have begun in 1931 when Great Britain took the pound off the gold standard and to have ended with the Tripartite monetary agreement of 1936.

BRETTON WOODS ERA

From the end of WWII until about 1971, the Bretton Woods system of semi-fixed exchange rates meant that competitive devaluation was not an option, which was one of the design objectives of the systems architects. Global growth was generally very high in this period, so there was little incentive for the major economies to want to devalue even if it had been possible.

1973 to 2000
In this era on several occasions countries were desperately attempting not to devalue but to maintain the value of their currency, striving not against other countries but against the markets who wanted them to devalue.

COMPETITIVE DEVALUATION AFTER 2009..

By 2009 some of the conditions required for a currency war had returned, with a severe economic downturn seeing global trade in that year decline by 12% . There was a widespread desire among countries to lower their exchange rates, with both advanced and emerging economies effectively competing to devalue.

CURRENCY CLASH BETWEEN TWO ECONOMIC POWERS..

Since March 2010, there is a buzz in the global economic environment about currency manipulation. The situation has given rise to a Currency War scenario as termed by the International Monetary Fund during its annual meetings held in Washington, D.C between October 8 and 10, 2010. The two economic superpowers, China and United States are posed against each other as a result of this situation.

How is chinas currency depreciating??

Chinas yuan policy is to keep the value of its currency low against other foreign currencies like the euro and US dollar. It does this by creating an artificial demand of other currencies in the market. Basically, if the demand of US dollar rises in the market, the currency appreciates against the yuan.

IMPORTANT CAUSES OF CURRENCY WAR

The Japanese government took a number of measures to intervene in the exchange market and keep the price of yen low against other major currencies. Countries like South Korea, Brazil and Singapore doubled taxes on capital inflows and as a result the appreciation of their currencies stopped.

 The chief reason behind this stays with the United States. The country is undergoing a very slow economic recovery and to worsen it the unemployment numbers are high. The increased cash flow and liquidity by the US federal in to the markets caused the depreciation of dollar against other global currencies. As a result, other countries went under pressure as their currencies were appreciating constantly and affecting their exports and finances.

IMPACT ON GLOBAL MARKET

The currency war situation between US and China is burdening other emerging economies to take the control of their currencies and depreciate them in order to maintain their trade deficits and balance the economy.

Solution
The currency rates on foreign exchanges should be left on the market forces instead of intervention from governments so that the global imbalances are eliminated and developing nations are not pressurized with undue currency exchange rates.

QUERIES???

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