In a global economy still recovering from the 2008 crisis, boosting economic growth has become a key priority. The discussion among central bankers has focused on using currency depreciation to boost export competitiveness, production and employment.
This is by no means a novel idea. Competitive devaluations were repeatedly used during the 1930s to gain competitive advantage – until the trading partner also devalued, negating the impact of the first devaluation. Such currency wars, or “beggar thy neighbour” policies, prolonged and deepened the Great Depression. More recently, incremental resort to quantitative easing by the US Federal Reserve has weakened the dollar on a trade-weighted basis.