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The Global Currency War

January 28th, 2017 | by BTC News

The Global Currency War

A currency in the best precise utilization of the term denotes to cash in various styles at the time of usage or circulation. A common description would be, a currency is a structure of cash (financial components) in normal usage, particularly in a country. For e.g., the American dollar, the Chinese yuan, the Japanese yen is known as currencies.

They have intrinsic value. They are used to facilitate trade between countries through the global foreign exchange markets, which measure the comparative value of the various currencies. In other words, currencies are elucidated by governments and each category has restricted area of recognition.

A banknote which is also referred to as a bill in the US and Canada, is a kind of currency, which is usually utilized as a lawful circulating medium in various controls. The banknotes along with coins represent the cash type of money. Banknotes are usually paper, but the Commonwealth Scientific and Industrial Research Organization based in Australia, created the globes premier polymer currency that was launched in 1988.

Polymer currencies are being used in more than 40 nations. It enhances the life tenure of a banknote and averts duplication.

At present, the International Organization for Standardization has established a three-letter structure of encryptions (ISO 4217) to elucidate currency (instead of basic names or symbols), because there are many currencies known as the dollar and many currencies known as the franc. The three letters utilize the ISO 3166-1 nation code for the initial two letters, and the primary letter of the currency name. For e.g., the currency of the USA is internationally denoted as USD.

There are private trusts which also assist alternate currencies like Bitcoin among others. Often, it is the central bank in a country that has the legal control to print and provide coins and banknotes (also called fiat money) for circulation, both internally and externally.
It controls the creation of currency in the form of credit by banks via the monetary strategy. The definition of an exchange rate is the value at which two currencies can be traded against each other. They can be categorized as floating or fixed.

Convertibility of a currency defines the capability of a person, organization or government to convert its regional currency into another currency in the presence or absence of intervention by the central bank. They can be categorized as fully convertible, partially convertible and nonconvertible.

A currency war denotes the circumstances in which several countries strive to intentionally devalue its currency to bolster the economy. Though currency devaluation is normal as far as the foreign exchange market is concerned, the stamp of a currency war is the substantial number of countries that could be concurrently involved in efforts to devalue their currency.
A currency war is also called as “competitive devaluation.” In the existing scenario of floating exchange rates, in which currency values are decided by the market, currency devaluation is mostly managed by the country’s central bank via economic strategies – quantitative easing (QE).

This has resulted in the current currency wars being more intricate than those in the past. According to market experts, an outbreak of the international currency war is imminent, as a reviving yen along with the euro impend to provide decision makers in Japan and Europe an impetus to supplement financial incentive.

In the recent past, both the yen and the Euro have moved upwards against other major currencies. The American dollar had a setback as expectations diminished for more currency-oriented interest rate growths in the US during continual market turbulence and weaker than projected local economic statistics.

An increasing discrepancy in the US development and financial strategy in comparison to the other global economies has slowed down amidst indicators that the US economy cannot be insulated from a decline in China and inefficient improvement in other regions. That is impacting the dollar, while thwarting the economic objectives of the Bank of Japan and European Central Bank, which gain through their currency devaluation.

As per Lee Ferridge, Head of Macro Strategy for North America at State Street Global Markets (a unit of State Street Corp), “The currency war is still alive and well. If the dollar starts to suffer, then the ECB or the BOJ come back into play.”

The measures by China to devalue its currency has triggered doubts of a currency war in Asia. According to some experts, the outlook for a currency war extending across the Pacific is improbable. The decline of the yuan, which was also influenced by the market is not expected to result in a surge of viable devaluation.

Again, the assumption that the competitors of China in the region are following strategies of dynamic exchange rate control does not hold ground, since not all decision makers want to become dynamic. The US dollar is based on the floating system and the Fed has restricted control over it. The situation with Korea is similar.

According to Jacob Lew, U.S. Treasury Secretary, “There won’t be any surprises. We won’t see countries acting in a way that could trigger the kind of competitive devaluation that leads to potentially a currency war”.

It is believed that the members of the G20 would not risk initiating measures that could impact their relationship with fellow members. Again, cooperation on policy making ensures everyone benefits. By communicating to the market, an agreement on the perils of currency turbulence to the international economy, the members of the G20 send a positive signal to the global investment community.

Though the G-20 obligation is not mandatory, in a period of enhancing susceptibilities, it is a commitment each G-20 member would expect, each one would maintain.

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