Bring on the Currency Wars, Essay Example

In the article, “Bring On the Currency Wars”, the author discusses how central bankers deal with the struggle of the small growth and falling inflation. The resulting conclusion is to turn the problems onto someone else. For instance, since the domestic interest rates are hitting rock bottom, the solution for central bankers is to increase growth in net exporting and devalue their currencies. For instance, the Bank of Japan decreased the value of the yen by 15% during 2014. The result of this showed an increase in the Japanese exports to almost 10%, further resulting in the realization of this matter in other countries.

Due to the increase in exports in Japan from the decrease of the Yen, the People’s Bank of China decided to instate their own procedure.  China decreased their one year lending rate to 5.6% and its deposit rates to 2.75%.  Although it seems to be working for Japan, the author of the article makes a good point indicating that this is a short term gain.  The author explains who other economies apart from the United States had participated in the importing, but the economies are not strong in these countries and the United States will have to take up the slack to end the deflation in Japan.  It is predicted that the economy is recovering in the United States with unemployment rates decreasing, which in turn will increase the importing in the United States.

The author also uploaded a consumer Current account balance, percent of GDP chart in the article as well for the years 1999-2013 for Germany, Japan and the United States.  The chart illustrates the trend in accounts balances and compares each country.  It shows Germany having the highest account balance for the majority of the years.  The author implies that looking at this balance explains the current global financial crises.

Works Cited

Mattich, A.  Bring on the Currency Wars.  The Wall Street Journal. 2014.  Retrieved from: http://blogs.wsj.com/moneybeat/2014/11/21/bring-on-the-currency-wars/