Foreign currency wars are aimed at moving towards inflation and not growth.
The finance minister of Brazil Guido Mantega coined said term in 2010 to describe policies during that time of key central banks. These were meant to enhance competitiveness of financial systems through shaky currencies. At present, lower FOREX rates can be a means of avoiding paralyzing deflation.
Feeble price growth suffocates economies from the European Union to Japan and Israel. Eight out of 10 currencies with biggest projected declines until 2015 come from countries which are in deflation or practice policies that destabilize exchange rates.
If a certain jurisdiction undermines its exchange rate, another one becomes stronger. It makes imported commodities cheaper. Deflation can both become a consequence and contributor to the slowdown of world economy. It can push the euro area near recession and reduce demand for exports from nations like New Zealand and China.
Governor Haruhiko Kuroda of the Bank of Japan says he is more amenable to lower exchange rates that can help meet inflation targets and extend the country’s unparalleled stimulus program. Meanwhile, the European Central Bank President recognized the need for a weaker currency to stay away from deflation. It can also make exports highly competitive.
The Argentine peso is declining after debt default and devaluation. The Japanese currency is expected to become the biggest loser among principal currencies by end of next year. A six percent drop has been projected. It has built a 5.5 percent slip since the middle of 2014.
The euro is also looking at a slump of 4.8 percent.