To say these are unprecedented times is an understatement. Global Central Banks are using every single monetary policy tool at their disposal to try and fight the forces of deflation and this has resulted in currency wars. In fact, 15 central banks have eased monetary policy in one way or another this year. Since this is a global economy each move made has far reaching affects upon all nations and their abilities to control the imbalances being caused by central bank brute force.
The term currency war gained prominence in 2010 when Guido Mantega, Brazil’s Finance Minister, complained that quantitative easing (QE) was weakening the US Dollar and prompting other countries to respond so they wouldn’t lose their export competiveness. This led to a “race to the bottom” in which all countries were engaged in trying to weaken their own currencies as much and as quickly as possible. Fast forward to today, as the chart below shows, and the opposite situation holds true. The USD has strengthened dramatically since 2011 and is sitting at decade highs. The biggest part of the move has come since the summer of 2014.
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