In the March 2013 economic update video for eZonomics, ING head of macroeconomics Maarten Leen says the weakening of the Japanese yen under policy from the new government sparked the latest fears. A couple of years ago Brazil and China were in the spotlight for similar reasons.
What is a currency war?
The term currency war typically refers to a situation when several countries try to weaken their currencies at the same time to try to stimulate their economies. A weaker currency can stimulate exports because goods sold abroad become cheaper. But because not all currencies can be weak at the same time, problems can occur.
Leen says that if a currency war started, the reality is it could “probably not” be won as the main global economies all have the same devices at their disposal to weaken currencies.
“The fall in the Japanese yen may be a ‘one –off’ event but with growth low and unemployment high in many countries at the moment, we cannot be sure,” he says. “There are no winners in a currency war. That is why it is best avoided.”