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Chapter 10: Trade & Currency Wars

currency war by lowering the value of their currencies.
A low valued currency hurts consumers and debtors,
but favors long-term growth with an increase in foreign
demand. At the same time, foreign goods become more
expensive, so less money leaves the country.

Countries engage in currency wars by influencing
the demand and supply of their currency on the world
market. Currency wars are always a zero-sum game
where someone wins, and someone loses. Countries
with high valued currencies are like people who spend
all their money without saving; they sacrifice the future
for present consumption. Countries with low valued
currencies sacrifice current consumption for future gain.

Switzerland has pegged its currency, the franc, to
the euro. When market pressures tended to increase the
value of the franc relative to the euro, Swiss banking
authorities increased the supply of francs to bring the
value down, keeping it at par with the euro. When their
efforts proved ineffective, the Swiss lifted the peg and
let the franc seek market equilibrium. The franc’s value
shot up almost overnight, to where it would have been
without the peg. Instead of changes taking place slowly
over several years, giving everyone a chance to adjust
to the changing conditions, panic and disruptions
occurred.

America is in a unique position when it comes to
a currency war with other nations. The Federal
Reserve’s practice of quantitative easing has led to an
increase in dollars abroad and has put downward
pressure on its value. At the same time, the demand for
the dollar remains strong because of its status. America
is less dependent on foreign trade as compared with

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