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The global “currency war” entered a new phase on Tuesday as China’s surprise devaluation threatened to unleash competitive devaluations and keep monetary policy around the world looser for longer, perhaps even forcing the U.S. Federal Reserve to delay its expected interest rate rise.
“Currency wars,” a phrase used by Brazil’s former finance minister Guido Mantega in 2010 to describe how competing countries explicitly or implicitly weaken their exchange rates to boost exports, have intensified in recent years.
As interest rates have fallen to zero in some developed economies and money printing has proliferated, exchange rate policy has become one of the few remaining levers to stimulate business activity and in some cases avoid deflation. So investors are now concerned that China may elect to keep pushing the yuan lower.
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James' World 2 