T-54 tanks
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The basic concept of "currency wars" is that countries are all trying to weaken their currencies to boost exports. "Wars" is an overly dramatic word to use, but countries to complain about other countries engaging in currency weakening, and it does make for a good soundbite.
Anyway, Citi's currency guru Steven Englander has an interesting note out about who inevitably "wins" these wars, and the answer is similar to that of real wars: the rich countries.
As he puts it, they win because they're indifferent to the consequences.
He lists several reasons why. We summarize.
  • Countries with deflation have a big advantage. Rich countries (Switzerland, Japan, etc.) that have falling prices just don't have the inflation risk that, say, a Brazil has. So the rich countries have way more leverage.
  • Being poor is a disadvantage. If you have to worry about feeding yourself, then you're taking a big risk weakening your currency.
  • Not caring about inflation is an advantage. Again, go back to the first point.
  • Not caring about domestic asset inflation is an advantage. If you're the US, UK, or Japan, you don't mind rising asset prices at home. They help from a wealth effect standpoint. China? They're more worried.
  • Countries with central banks and Treasuries that are conjoined have an advantage, as the central bank can monetize more easily.
  • Currency caps are risky for some countries. If Australia tried to do what Switzerland did (when it capped its currency against the Euro) Australia would be faced with an onslaught of foreign currency buyers that they don't want.
Anyway, some interesting food for thought as you think about the dynamics, and you think about who's doing the "currency wars" complaining. And though the phrase originally originated from Brazil (and seems to be popular in China as well) the latest round of complaining comes from Germany towards Japan, so it's not just a poor vs. rich thing.