Famed economist Nouriel Roubini of New York University warns that a global currency war might be looming.
He recently told Bloomberg TV
currency tensions are mounting and the situation could explode into a full-blown currency war, "between Japan and the eurozone on one side of the United States."
And he explained that the U.S. central bank's tactics are behind it all.
"The Fed has gone very dovish. They are going to hike on the investor twice this year. Even some Fed governors were talking down the dollar, and that is creating, both in the euro and in Japan, some frustration," he said.
"There is a sense in Japan and in the eurozone right now that the U.S. Is cheating, pushing down the volume of the dollar in a situation where growth is improving in the U.S., inflation is going higher in the U.S.," he said.
"While in Europe and Japan, inflation has gone lower. And growth is faltering."
A currency war,
also known as competitive devaluations, is commonly defined
as a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies.
As the exchange rate of a country's currency falls exports become more competitive in other countries, and imports into the country become more expensive. Both effects benefit the domestic industry, and thus employment, which receives a boost in demand from both domestic and foreign markets.
However, the price increases for import goods (as well as in the cost of foreign travel) are unpopular as they harm citizens' purchasing power; and when all countries adopt a similar strategy, it can lead to a general decline in international trade, harming all countries.
And he doubts there is anything that global leaders can do to stop the currency war.
"I think that intrinsically, even central bankers in Europe, they were concerned about fiscal policy and the need for austerity. They are saying we are running out of bullets. We are reaching the limits of what monetary policy can do," he said.
's Edward Hoofnagle, CFA, agrees that the central bank isn't helping matters at all.
"The Fed digs deeply into the U.S. economy, discussing very granular and specific elements of the economic puzzle, but when discussing international events, it seems disjointed and high-level. And that wouldn't be so bad, except their entire premise for not raising rates is BASED on the international worries!" Hoofnagle wrote.
"Reading between the lines, the Fed seems to be desperately fighting the USD advance over the past 12 months, highlighting repeatedly that the strong USD and weak oil is causing deflation, while worrying that further rate advances will only exacerbate the dollar increase and its deflationary push," he wrote. "The currency war is dead! Long live the currency war!"
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