page_title: Currency war
section_title: Competitive devaluation after 2009
hierarchical_section_title: Currency war / Historical overview / Competitive devaluation after 2009
caption_attribution_description: English: one hundred doller bill colection
context_page_description: Currency war, also known as competitive devaluations, is a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies. As the exchange rate of a country's currency falls, exports become more competitive in other countries, and imports into the country become more and more expensive. Both effects benefit the domestic industry, and thus employment, which receives a boost in demand from both domestic and foreign markets. However, the price increases for import goods are unpopular as they harm citizens' purchasing power; and when all countries adopt a similar strategy, it can lead to a general decline in international trade, harming all countries.
  Historically, competitive devaluations have been rare as countries have generally preferred to maintain a high value for their currency. Countries have generally allowed market forces to work, or have participated in systems of managed exchanges rates.
context_section_description: 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 about 12%. There was a widespread concern among advanced economies about the size of their deficits; they increasingly joined emerging economies in viewing export led growth as their ideal strategy. In March 2009, even before international co-operation reached its peak with the 2009 G-20 London Summit , economist Ted Truman became one of the first to warn of the dangers of competitive devaluation. He also coined the phrase competitive non-appreciation.
  On 27 September 2010, Brazilian Finance Minister Guido Mantega announced that the world is "in the midst of an international currency war."
  Numerous financial journalists agreed with Mantega's view, such as the Financial Times' Alan Beattie and The Telegraph's Ambrose Evans-Pritchard. Journalists linked Mantega's announcement to recent interventions by various countries seeking to devalue their exchange rate including China, Japan, Colombia, Israel and Switzerland.
  Other analysts such as Goldman Sach's Jim O'Neill asserted that fears of a currency war were exaggerated.
  In September, senior policy makers such as Dominique Strauss-Kahn, then managing director of the IMF, and Tim Geithner, US Secretary of the Treasury, were reported as saying the chances of a genuine currency war breaking out were low; however by early October, Strauss-Kahn was warning that the risk of a currency war was real. He also suggested the IMF could help resolve the trade imbalances which could be the underlying casus belli for conflicts over currency valuations. Mr Strauss-Kahn said that using currencies as weapons "is not a solution [and] it can even lead to a very bad situation. There's no domestic solution to a global problem."
  Considerable attention had been focused on the US, due to its quantitative easing programmes, and on China.
  For much of 2009 and 2010, China was under pressure from the US to allow the yuan to appreciate. Between June and October 2010, China allowed a 2% appreciation, but there were concerns from Western observers that China only relaxed its intervention when under heavy pressure. The fixed peg was not abandoned until just before the June G20 meeting, after which the yuan appreciated by about 1%, only to devalue slowly again, until further US pressure in September when it again appreciated relatively steeply, just prior to the September US Congressional hearings to discuss measures to force a revaluation.
  Reuters suggested that both China and the United States were "winning" the currency war, holding down their currencies while pushing up the value of the Euro, the Yen, and the currencies of many emerging economies.
  Martin Wolf, an economics leader writer with the Financial Times, suggested there may be advantages in western economies taking a more confrontational approach against China, which in recent years had been by far the biggest practitioner of competitive devaluation. Although he advised that rather than using protectionist measures which may spark a trade war, a better tactic would be to use targeted capital controls against China to prevent them buying foreign assets in order to further devalue the yuan, as previously suggested by Daniel Gros, Director of the Centre for European Policy Studies.
  A contrasting view was published on 19 October, with a paper from Chinese economist Yiping Huang arguing that the US did not win the last "currency war" with Japan, and has even less of a chance against China; but should focus instead on broader "structural adjustments" at the November 2010 G-20 Seoul summit.
  Discussion over currency war and imbalances dominated the 2010 G-20 Seoul summit, but little progress was made in resolving the issue.
  In the first half of 2011 analysts and the financial press widely reported that the currency war had ended or at least entered a lull, though speaking in July 2011 Guido Mantega told the Financial Times that the conflict was still ongoing.
  As investor confidence in the global economic out
caption: As the world's leading Reserve currency, the US dollar was central to the 2010–2011 outbreak of currency war.
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