Exchange rates and the economy: Devaluations didn't work

THE term "currency wars" has sparked a vigorous debate within the economics commentariat. The term was coined by Brazil's then finance minister, Guido Mantega, in 2010 when the real was moving sharply higher, a nice irony given the real's recent falls to record lows. Some saw it as a negative development, talking of beggar-thy-neighbour devaluations designed to grab a bigger share of world trade; eventually, this was a zero sum game since all currencies cannot devalue. The counter-argument was that, on the contrary, this was positive for the world economy. Countries were easing monetary policy, either by cutting interest rates or adopting quantitative easing, and the aggregate effect would be to boost global demand. Parallels were drawn with the 1930s when developed countries abandoned the gold standard and those that devalued first, recovered most quickly.A new (privately circulated, so no link) note from Stephen King, the senior economic adviser at HSBC, argues that the 1930s parallel is incorrect and that, currentlyattempts by individual central banks to boost growth and inflation via currency depreciation have been collectively self-defeatingThe key difference, in Mr King's view is thatIn the 1930s, currency declines weren’t just simple devaluations. They represented, instead, a seismic change in monetary regimes. The gold standard was abandoned. The anchor that had …
Source: The Economy