Currency Wars Not Worth Fighting Presently

While weaker exchange rates have at times throughout history helped stoke economic growth by making countries’ exports cheaper, the benefits are becoming hard to find.

Nowhere is this more apparent than in developing nations, where currencies have slumped 24 percent on average against the dollar since 2011. Yet despite this, their annual export growth rate has actually slowed to 4 percent in the past four years from 8 percent during the previous decade, according to the CPB Netherlands Bureau for Economic Policy Analysis. In Brazil, the real’s 48 percent plunge since 2011 has done little to revive an economy heading for its worst performance in 25 years.

“The relationship between global growth and trade is breaking down in a way that we cannot apply the past relationship to predict the future,” Stephen Jen, a former International Monetary Fund economist who is co-founder of SLJ Macro Partners LLP in London, said by telephone. “It now takes a bigger devaluation to have the same benefit.”

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.