Countries Compete Against Each Other Using Devaluation of Currency

The Fed is intentionally weakening the dollar to bolster the economy and encourage exports, but economists warn that long-term this policy is not beneficial. Simply because this action is an invitation to other countries to spark currency wars.

The weakening of currency does raise the price of metals. According to Reuters, gold hit an all-time high of $1,351 per ounce in the U.S. gold futures market. This can be attributed to the weakening of the dollar.

Guido Mantega , a Brazilian economist, has stated that an international currency war has begun. Numerous analysts have agreed with this point of view. Several countries around the globe have been devaluing currencies, including China, Japan and Switzerland.

It was in the 1930’s when most countries abandoned the gold standard. This ultimately resulted in currencies which no longer held any value. Countries were trying to export those high rates of unemployment. As a result of the counteractions being taken, international trade declined. This further added to the problem.

Some analysts believe there are strong parallels to the Great Depression and that is what we are witnessing this very moment. Economic markets are volatile and stubborn unemployment percentages do not indicate a quick economic recovery. Some economists are very concerned about the global economic downturn, while others think that traders are better equipped in today’s sophisticated environment. Only time will tell.