The Economist’s “Buttonwood” column dedicates a bunch of space to fretting about currency wars today but then teeters up to my conclusion that a little currency war is just what the doctor ordered. Consider:
It is all a bit reminiscent of the 1930s. when countries went off the gold standard, they gained a competitive march on their rivals, increasing the pressure for such countries to leave the standard as well. If one country devalued by 10%, the next might do so by 15%. QE may similarly begat more QE.
Invocations of the 1930s are meant to frighten us, I think, but consider the record of competitive devaluation in the 1930s:
The only loser in this war is France, because they didn’t ditch gold and devalue. But you can see that initially Japan gained an advantage, then Japan and Britain had an advantage, but then the US and Germany got in the party too. Good times all around. So let’s by all means repeat the experience of the 1930s in this regard.