2015, The Year of Continuing Currency Wars – Who will be the winners, or will there be any?

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on Feb 26, 2015
Updated: Oct 18, 2019
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2015 started with substantial divergence around the world, in terms of monetary policy and economic conditions, when comparing regions experiencing accelerating growth to those that are still facing significant problems. We are now more than halfway into the first quarter of 2015 and although some parts of the world seem to have come out of the economic crisis, several economies around the world still have not recovered sufficiently, or in some cases the struggle has intensified.

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Inflation has reached several decade lows despite monetary policy being extremely loose in most of the developed economies and tight in emerging economies and credit spreads are trading below default rates, while yields and volatility still remain near historic lows. 

Such low inflation rates around the world, and disinflation caused by sliding oil and other commodity prices, are causing a number of central bank responses such as negative interest rates, asset purchases and FX interventions – hence the Currency Wars.

Currency war is a tactic used in international affairs with potentially destructive outcomes, by which countries with ailing economies enter a race to the bottom and compete against each other in weakening their currency to achieve a relatively low exchange rate, in an effort to boost their domestic industry, exports, and therefore improve employment and economic growth figures. This policy effectively causes countries to “steal exports” and therefore growth from their trading partners, and as a result a decline in international trade may be caused, eventually harming all countries. For the citizens of these countries, a vacation abroad becomes a lot more expensive and their purchasing power for imported goods is reduced.

Although the preferred method has historically been for countries around the world to maintain a relatively high value for their currency and in general allow market forces to prevail or to have mechanisms of managed exchanged rates, a couple of exceptions have occurred and ended badly. The first one was in the 1930s during the Great Depression when countries abandoned the Gold Standard and used currency devaluations to boost their economies. The second one occurred in 1971 when President Nixon imposed wage and price controls to curb inflation and suspended the gold standard in an effort to put an end to the currency war that was hurting the US dollar.

More recently, countries that have been participating in a competitive devaluation race since 2010, have used a combination of policy tools, including

Christiana Vasiadou


Head of Fund Management

RISK DISCLAIMER The content of this analysis does not contain investment advice or recommendation and should not be considered as a solicitation to buy any financial instruments or products. JFD Brokers is not liable for any damages, which would be/are caused by individual comments and statements regarding this analysis and accepts no liability in respect of completeness and correctness of the content. Thus, the investor exclusively bears the risk and is solely responsible for his/her investment decisions. The presented analysis does not take into consideration any personal investment objectives, financial circumstances or needs. Trading Foreign Exchange and Contracts for Difference (CFDs) is highly speculative and may not be suitable for all investors. Please ensure that you fully understand the risks involved.

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