A currency war is a situation where several countries simultaneously devalue their currency by printing more money, with an ostensible motive of increasing their exports. We are now in the midst of a currency war. And it has not been good for India. The present day high inflation and the drastic depreciation of the rupee in summer of 2013 can be attributed to the ongoing currency war.
James Rickards is a noted international finance expert and author of the book Currency Wars: The Making of the Next Global Crisis (2011). According to Rickards, this is not the first time that the world has been engaged in a currency war. Actually it is the third time in the last hundred years. And every time the currency wars have ended badly. The 1930s currency war “led quickly to Japan’s invasions in Asia and Germany’s attacks in Europe”. The 1970s currency war “led quickly to the worst period of inflation in history”. The present day currency war which started in 2010 with the US quantitative easing (QE) programme promises to bring about the collapse of the international monetary system, according to Rickards. Indeed this is why Austrian School writer Patrick Barron calls the present day currency war a “currency suicide”.
It is still too early to comment on how the denouement will turn out. The first currency war lasted fifteen years, from 1921 to 1936, and the second currency war lasted twenty years, from 1967 to 1987. “If that pattern holds, the new currency war might last until 2020 or beyond,” writes Rickards in Currency Wars.
In a latter part of the book, Rickards attempts to view the present day economy through the lens of complexity theory. Rickards manages to make this highly sophisticated theory accessible to the layman. As he puts it, complexity theory deals with diverse, connected, interdependent and adaptive systems. Such systems can display emergent properties and phase transitions. Financial bubbles and stock market crashes are examples of phase transitions.
In a complex system, a small trigger can either cause a small response or an extremely large response, it is hard to predict. The present-day society is so globalized and so intertwined that a trigger such as a loss of confidence in the dollar may cause the collapse of the entire international financial system.
Rickards quotes complexity theorist Joseph Tainter: “Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse. World civilization will disintegrate as a whole.”
All in all, this is a prescient and timely book written in a highly readable style. I am looking forward to reading Rickards’ next book, The Death of Money coming out in April 2014.
James Rickards is a noted international finance expert and author of the book Currency Wars: The Making of the Next Global Crisis (2011). According to Rickards, this is not the first time that the world has been engaged in a currency war. Actually it is the third time in the last hundred years. And every time the currency wars have ended badly. The 1930s currency war “led quickly to Japan’s invasions in Asia and Germany’s attacks in Europe”. The 1970s currency war “led quickly to the worst period of inflation in history”. The present day currency war which started in 2010 with the US quantitative easing (QE) programme promises to bring about the collapse of the international monetary system, according to Rickards. Indeed this is why Austrian School writer Patrick Barron calls the present day currency war a “currency suicide”.
It is still too early to comment on how the denouement will turn out. The first currency war lasted fifteen years, from 1921 to 1936, and the second currency war lasted twenty years, from 1967 to 1987. “If that pattern holds, the new currency war might last until 2020 or beyond,” writes Rickards in Currency Wars.
In a latter part of the book, Rickards attempts to view the present day economy through the lens of complexity theory. Rickards manages to make this highly sophisticated theory accessible to the layman. As he puts it, complexity theory deals with diverse, connected, interdependent and adaptive systems. Such systems can display emergent properties and phase transitions. Financial bubbles and stock market crashes are examples of phase transitions.
In a complex system, a small trigger can either cause a small response or an extremely large response, it is hard to predict. The present-day society is so globalized and so intertwined that a trigger such as a loss of confidence in the dollar may cause the collapse of the entire international financial system.
Rickards quotes complexity theorist Joseph Tainter: “Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse. World civilization will disintegrate as a whole.”
All in all, this is a prescient and timely book written in a highly readable style. I am looking forward to reading Rickards’ next book, The Death of Money coming out in April 2014.
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