Guest Post: Is A Currency War Coming?

Tyler Durden's picture

Submitted by Kurt Brouwer of Fundmastery

Is a currency war coming?

I have made it clear that I believe the U.S. Treasury wants a weaker dollar.  For more on that, see U.S. Treasury seeks weaker dollar.  In addition to the post itself, the comment string is very interesting and worth reading.

For different reasons, the Federal Reserve and the Bank of Japan are
trying to weaken their respective currencies.  China is allowing its
currency, the yuan, to strengthen, but not quickly enough for the U.S.

In addition to this potential currency manipulation, we have the Bank
of Japan and The Federal Reserve engaging in economic stimulus programs
called quantitative easing, which is a new way to debase currency
through the digital printing of money.

A central bank two-fer

This amounts to a two-fer for central banks in that they can
accomplish two seemingly diverse tasks. It reminds me of an old spoof
television commercial showing a couple fighting over whether a product
was a floor wax or a dessert topping–”It’s a stimulus program.  No, it’s
currency manipulation.  No kids, it’s both.”

By printing more money, central banks (U.S. and Japan) hope to
stimulate moribund economies and this manipulation has the salutary
effect of also weakening the currency such that exports are enhanced. 

This piece features the thoughts of the International Monetary Fund (IMF) on the current state of play in foreign exchange:

Cooperation on the global economy is
“decreasing,” the head of the International Monetary Fund said
Thursday, warning countries about the risks of a so-called currency
Momentum to cooperate on economic policies is “not
vanishing but decreasing,” IMF managing director Dominique Strauss-Kahn
told reporters ahead of the annual meetings of the IMF and World Bank.
He said that falling cooperation is a threat, because “there’s no
domestic or national solution to [a] global problem.”

Strauss-Kahn added that some countries consider their
currency a “weapon,” and that the “currency war” being talked about by
many is a negative thing.

As of yet, we are not in a currency was, but it appears to me that
some folks — Treasury Secretary Geithner being one — are itching for a
fight.  Congress has also gotten into the act.  This might make sense in
a different economic environment, but it is very foolish now.  We
really do not need a currency war now and we really do not need further
politically-inspired trade restrictions.  Either or both are likely to
make our economy worse. continues:

Strauss-Kahn spoke to reporters a day after U.S.
Treasury Secretary Timothy Geithner effectively blamed China for
stoking a currency war.

“When large economies with undervalued exchange rates act to keep the
currency from appreciating, that encourages other countries to do the
same, and this sets off a dangerous dynamic,” Geithner said in a speech
in Washington. Read MarketWatch’s coverage of the IMF and World Bank meetings.

World Bank President Robert Zoellick echoed Strauss-Kahn’s comments
on Thursday, cautioning that currency tensions could undermine the
global economic recovery…

Essentially, Giethner is telling China to go along with our program
or else.  Anyone, who understands the history of China and of world
trade would have to at least admit the possibility that problems will
ensue from such a hard line stance.

In a separate piece, we see additional information on what is now underway [emphasis added]:

…Brazilian finance minister Guido Mantega said a
currency war has broken out, and the head of the IMF, Dominique
Strauss-Kahn, warned of the risk of one if governments try to use
exchange rates to solve domestic problems.

“There is clearly the idea beginning to circulate that currencies can
be used as a policy weapon,” Strauss-Kahn said in a Financial Times

Geithner and other developed country officials say the fast-growing,
reserve-rich emerging market economies need to let their currencies
strengthen but the leading emerging nation, China, has by and
large resisted efforts to allow its currency to strengthen. (Brazil too
has put up barriers.) In late June, China took steps to allow more
movement in its currency, the yuan, but the currency has only
appreciated about 2% vs. the dollar since then…

The yuan has appreciated 2% since June against the dollar, but that
is not enough for some.  As you could see from the comments thread on
the post I mentioned in the first paragraph, there are different points
of view on this issue.

However, I would hope that our central banks stop short of actually
inciting a currency war, which would almost certainly escalate into a
trade war.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bugs_'s picture

It looks like World War Three (and a half)

Popo's picture

Is a currency war coming?

Last January just called and wants it's story back.

Lonewar's picture

Hey everyone,

Anytime you are having a conversation with someone and the conversation turns to money or finance, please ask them this question,


"Why does a private bank control the printing of the U.S. Dollar?"


That is all that I would request of you.

cbxer55's picture

I junked ya. Your putting this same exact message, word-for-word, on every thread on the board.


The essence of JUNK.

suckapump's picture

"It’s a stimulus program. No, it’s currency manipulation. No kids, it’s both."

Well, sort of. It's currency manipulation and an "involuntary concentration of wealth" (i.e., theft of citizens' savings) disguised as a stimulus program.

WWIII might very well (literally) be on our own turf.

Atomizer's picture

This is a socially engineered IMF agenda. I say, bring it on.

Myzery's picture

Pretty much.


1 IMF to rule them all.


I don't think TPTB in America want this NECESSARILY to happen, they just have no alternative. They'll still be given a pretty nice seat.


Who knows, the FED might look papable by comparison to the IMF.


We need a consitutional amendment to get our 8000 tons of gold back before the treasury uses it to 'settle.'



Atomizer's picture

That indeed is the game play. The Marxist want us to revolt & comply with new system.

Bottom line, we can cancel out the FED by a pen stroke. Re-coin currency without the FED or IMF intervention.

We have US military toys in the air. Turning cities into glass is passé.

ZackLo's picture

Well hasn't the IMF been selling  a lot of gold lately?


might already be to late..

Oracle of Kypseli's picture

Watch the yen pop to 84-85 level by Tuesday. You heard it here first

doolittlegeorge's picture

i'll be watchin'.  i'll also be watchin' "corn poppin'."  never told my Corn Pop story, did I?  Trust's a good one.

Rasna's picture

The poster appears to be late to the game...

"Is a currency war coming?", HUH??? We are engaged in a full fledged currency war taling place right now.

The Treasury/Fed DOES indeed want a weaker dollar.


What's next?

SWRichmond's picture

+1.  The war is merely undeclared.  The amount of paper you can buy with gold tells the story.

cossack55's picture

I think our last "Declared" war was in 1941.  Huh? That was also the last one we won, and obtained the Black Eagle Fund.

doolittlegeorge's picture

wait a minute here.  "Show me the money."  We still have a war going on--undeclared against Pakistan when last I checked. That is a real war.  They are a nuclear power with nuclear weapons by the way. There is nothing that prevents Ben Bernanke from raising rates, too.  It's been done before.  I must say I find the concept of an "atomizer" very disturbing as well.

hugolp's picture

Coming? Its already here.

PeterB's picture

The FED is nothing more than a synthetic debt pusher. Let's see if they eventually accept repayment by credit card or real future labour hours i.e. physical dollars.

downrodeo's picture

OMFG, gold just flatlined


is everybody okay?

RobD's picture

I was wondering about that, did the traders take off early for a long weekend or something?

downrodeo's picture

I check this often. I've never seen the flatline last this long before. Somebody is asleep at the wheel, lol

Myzery's picture

Are you kidding me?

It's a 3-day weekend.

'They' set the PM fix that morning.


groucho_marxist's picture

looking at the linked chart, this is the third day in a row its happened: is this indicative of some pattern happening at the close of NYGlobex, or a software glitch in the chart?

Caviar Emptor's picture

We're in a confirmed, early currency war because there already are countries that perceive themselves as "winners" and "losers". Japan's stock market plunged this week over concerns about the flying Yen. South Korea and Brazil are fighting the Fed's dollar devaluation policy. 

But that is the least sinister of what's really happening. The stakes are really, really big. 

At the very least, this outbreak will force a reaction by global financial oversight organizations. That is IF they can all agree and IF members actually comply. Those who view themselves as winners will have to restrain themselves and the losers will have to undergo pain. What are the chances of that?

scaleindependent's picture

I need help.


If everyone knows the US is trying to get out of this mess by monetizing, then why the hell is China going along with it. I mean, in a couple weeks the Fed will own more UST than China.

What is their game plan?

Hopium? Do they have an exit plan?

I sincerely do not get it.

Caviar Emptor's picture

I've said it before: no, there is no plan. Just feed the smack errr liquidity addiction over and over, on call 24/7 if needed and just hope for the best. Yeah right. Like it really helped Japan's economy. Guess they're still in the "Reagan proved that deficits don't matter" fantasy that 's quickly becoming a spooky carnival gone bad.

scaleindependent's picture

Correct, but China must know that all of their nation's hard work and savings will evaporate as per the machinations of a madman.

In the 70's-80's, when Japan realized the US was inflating, it required that future loans to the US be paid back in Japanese currency.


Scarlo's picture

Of course they know. What are they to do with such a surplus though? They can plow megatons more into their own economy, threatening to create huge bubbles (check), they can start currency exchange programs with other nations (check), they can start stockpiling natural resources (check). The realize of course that they've been hornswaggled, but they've also benefitted from this in a huge way. Who's in a better position than they were 20 years ago, the US or China? Um, China! Who's relatively a lot worse off? U.S.!

So now China wakes up, smells the roast is fresh, and starts their own gold exchange so they can create a liquid market on their own soil. The lockdown resources flowing out, continue to import them, and work their way slowly towards using all their surpluses to acquire hard and/or productive assets. This is already obviously underway.

scaleindependent's picture



but if and when inflation and monetization  really takes off, then I'd think they would try to put a stop to it.

The best time to sell UST is with QE2, as the Fed artificially lowers yields.

Sell into strength

kaiserhoff's picture

That's sure as hell what I would do.  Last best chance. 

This could get entertaining.


Kobe Beef's picture

Guaranteed to be "entertaining". Quite possibly even involving. We live in "interesting" times.

It appears the longer term Chinese strategy is targeting resource-rich countries in Africa with "money diplomacy". Gotta spend those dollars somewhere, and they staff their infrastructure/resource extraction projects with Chinese laborers & engineers. Who knows, it might work out for the PRC.

Devalued as it is, and as it is prone to be, the dollar still goes a long way in Africa. I'd look for the Chinese to be offloading their dollars over there.




PhattyBuoy's picture

Dow 11K ...

J6pK is relishing the moment, and will go buy a new flat panel this weekend ...

JIT for the elections !

goldsaver's picture

Have you seen the movie "Rollover"? In this movie, the Arabs had billions of dollars in US banks but recognized the risk to their future. They began secretly, with the cooperation of a US bank, moving their dollars to gold a few hundred million at a time. The gig was up when they panicked and demanded all their dollars from all US banks causing a bankrun and the destruction of international currencies. At that point they didnt care anymore. To quote the lead Arab: "It is the end of the world as you know it!.

The Chinese have been positioning for a few years now selling the products of their slave labor in the US for dollars and using those dollars to purchase hard assets (gold, silver, mines, oil, lumber and steel) They keep their reserves as a weapon of mass destruction. When they feel it is strategically advantageous they will sell their bonds and crash the US dollar. They will emerge on the other side as the sole super power without firing a shot and at a profit to boot. Not hard to understand.

"The supreme art of war is to subdue the enemy without fighting"


trav7777's picture

Total fucking nonsense.

You guys don't understand the reality of China's forex reserves and why they had to accumulate them.

China has nowhere to dump their bonds to.

Look what part of China buying the fucking yen and Brazil buying the dollar don't you get?

Dollar Bill Hiccup's picture


I don't think many people get it. To lend a hand, I'll repeat what I've posted on other threads.

A good synopsis recently was George Soros' piece in the FT.  If you want years of China observation covering the major trade and economic imbalances in China, how the reserves accumulated and different ways out for China, read Michael Pettis at . Pettis is now a Professor at Beijing University. Read Andy Xie, formerly of Morgan Stanley. Other good street research, like GaveKal in Hong Kong tend toward the apologist side since their business is investing in Asia. They contribute pieces to the FT. Steve Roach is also interesting but again, the apologist side since he is Chairman of MS Asia. Nothing wrong with talking your book, just understand when it is so.

Whining about the Federal Reserve on ZH can be solipsitic and self defeating. If you don't like your government you should become politically active. The FED is not beyond your reach in the end. If you don't believe in politics or your constitutional rights, don't exercize them. I'm not sure where that leaves you in the real world but it's an option that many seem to take. At least you have the right to free speech. In China paradoxically there are people who are willing to fight for the freedoms they don't enjoy and suffer harsh consequences, like Nobel Laureate Liu Xiaobo serving an 11 year sentence for merely suggesting that human freedom is a universal value ... Ok, the Nobel Prize is a bit of the dog and pony but the man really is in prison for espousing an idea.

The Chinese Communist Party is a dictatorship running a mercantilist export economy. The CCP is not your friend. Nor is the CCP the Chinese People. As I've said before, I think that their shelf life is limited and that the Chinese will be much better off having said good ridance.


doolittlegeorge's picture

this is a very interesting question.  you're getting into the subject of "ChiAmerica"--and I am recommending the book.  I would argue "you have inflation, you have deflation and you have starvation."  If you think feeding farmers is hard--try and feed people in a city.  The largest cities in the world are all in mainland China and they are growing rapidly--hence their "close cooperation with commodity producing nations and certain American Senators save for Chuck Shumer."  There is of course the interesting question about whether "we in the USA need the food, too."  Maybe that explains my humor:  I'm living in the USA and I'm going hungry. 

AnAnonymous's picture

The largest cities in the world are all in mainland China and they are growing rapidly


Sure, buddy. The largest city in the world is by far Tokyo in Japan and it will take long for a Chinese city to catch up.

China has a long tradition of controlling internal migration, dating way before the Europeans came to instill communism.

Chinese cities are not among the largest cities in the world (top ten at least) You can find cities bigger on every other continent.

TGR's picture

What are you talking about? Population of Tokyo is approx 13m, population of Beijing about 22m, Shanghai 20m...not being picky just pointing out facts.

AnAnonymous's picture

Tokyo is around 30 M and Beijing around 10 M.

Still a long road to go.

TGR's picture

What are you smoking? You are either totally naive or are going to weasel on some technicality.

For the record, you are wrong.

Shanghai has a metropolitan population of 20m plus (conservative estimate - real estimates put it 22m plus). Beijing has a confirmed, government-backed (and therefore conservative once more) population of 22 million.


China does not have any catching up to do. Already surpassed.


If you are talking about Tokyo the city, it has a population of 13 million. End of story.

You are wrong.

Yes, the Tokyo Government reins over a much wider area than Tokyo City itself, and therefore governs some 39 million. But millions of those live on islands, other citys, other areas, than metropolitan Tokyo.

It's like you are trying to say because Washington DC administers over the US, the population of Washington DC is 300 million odd.

AnAnonymous's picture

I could find nowhere a source giving the numbers you quote about Chinese cities.

Dont ask what I smoke, ask them

Please explain. Entertain me.

TGR's picture

Truly? You didn't look hard at all, seeing as every normal credible and semi-credible source concurs with the figures I gave.

It's simple really, you are quoting from a factually bankrupt site (anyone with a PC connection and some spare fiat can create one) whereas if you were to say go to you'd see the population of Tokyo is about 13m.

Beijing has a population exceeding 22m and 

Shanghai has a population of 20m

The dodgy site you quote from even says its figures may be wrong, and can include populations outside of the city borders.

AnAnonymous's picture

Factually bankrupt site?Maybe.

What about this one?


Lets wait for the next round of entertainment. 



TGR's picture

LOL – well, I’ll stick to the facts thanks and go with the census, the professional demographers and local government authorities findings, which is Tokyo=13m, Beijing=22m, and Shanghai=20m.

From the Tokyo Metropolitan Government website:

As of October 1, 2009, the population of Tokyo is estimated to be 12.989 million, or about 10% of Japan’s total population, and it has the largest population among all the 47 prefectures.

(I guess that extra '20million' people were all out of town at the census last October).

As someone who works in China too (and travels to Japan), I have been well aware of the population numbers for many years. But you can keep pushing errors on this site if you wish, I was only trying to help out with the facts. China’s key cities have huge problems with itinerant workers, and a constant flow of migrants (legal or not).

From China Daily earlier this year:

Beijing's total population has exceeded 22 million, a mark that is supposed to be surpassed a decade later, the China National Radio reported today.


According to Beijing's latest "overall plan", the city should control the number of population at 18 million by the end of 2020. However, the combined population of permanent and non-permanent residents currently already exceeds 22 million, with the latter standing at eight to nine million, the report said.
Gloomy's picture

Currency Wars To Be Feared—Not Celebrated


By Comstock Partners

On Tuesday the market soared on the grounds that global efforts to engage in another round of monetary ease and devalue currencies would boost economies around the world. We think that the market’s initial reaction is a wrong-footed move that will soon be reversed upon further reflection. What we are actually facing is an all-out global currency war and old-fashioned "beggar-thy-neighbor" policies where every nation tries to devalue its currency to create more exports in order to boost its economy at the expense of every other nation.

It is obvious, however, that it is impossible for all currencies to decline in relation to each other. The failure then leads to other desperate measures to increase protectionist barriers such as higher tariffs, quotas and various restrictions on international capital flows. The result is a collapse of world trade leading to depression and the dreaded deflation that nations are trying to avoid in the first place.

As such, the recent actions of Japan, the anticipated start of QE2 by the U.S. and general global currency devaluation moves are something to be feared rather than celebrated. We know because we’ve been there before and know how it all ends. (See the Great Depression, competitive devaluations and Smoot-Hawley tariffs.)

The currency wars started slowly, but have recently been stepped up. Don’t be fooled into thinking that this is merely further monetary easing. The world has already undergone the most massive round of easing in history and we are facing a liquidity trap where further easing will have minimal effect. The real goal of various nations is to devalue. The Fed has indicated its intention to institute QE2, and, in anticipation, Japan has announced its own quantitative easing program to protect any additional rise in the Yen. The U.S. has stepped up its pressure on China to let the Yuan rise by a significant amount. The House has passed legislation allowing economic sanctions on China and other countries that are manipulating their currencies to gain trade advantages. China is vigorously resisting the pressure out of fear that a substantially higher Yuan would slash exports, leading to domestic unemployment and social unrest that would threaten the regime.

Other nations that have engaged in various forms of quantitative easing are Brazil, South Korea, Taiwan, Peru, Argentina and Switzerland. The Brazilian Real has already appreciated 25% against the dollar this year, and the Brazilian Finance Minister has stated his willingness to buy unlimited amounts of Dollars. In just a small sign of what’s to come, Brazil has also implemented a 2% tax on financial transactions to slow down the amount of "hot" money coming into the country. Meanwhile the ECB is one of the few areas trying to actually withdraw its post-crisis support of the banking system, and also has no plans to reduce its 1% refinancing rate any further. However, the Euro has increased 17% against the Dollar and 7% against an average of its major trading partners. This could impact EU growth rates in the period ahead and also put even more pressure on the already fragile economies of their peripheral nations such as Greece, Portugal, Ireland and Spain.

The IMF and World Bank are meeting this weekend, and these issues are obviously on the agenda. Leaders of both organizations have warned that a currency war could destabilize global financial markets. World Bank President Robert Zoellick stated that tensions over currencies could undermine investor confidence at a time when the world needs the private sector to boost growth. We doubt, though, that anything of real significance will come out of the meeting other than a general statement of good intentions. What we fear is that every nation will be bound so much by its own domestic political considerations that compromise will prove to be too difficult. What we hope is that we are not on the same path that led to the Great Depression.

doolittlegeorge's picture

remember "this is America's currency war."  As the global reserve currency--eh, okay.  I mean you're girlfriend telling you "you better holster that thing cowboy" might be in order.  Having said that "refusing to cooperate at the IMF" I would not advise.  A "discussion" is definitely in order.  We as Americans should be good listeners because "we may have first dibs on the IMF bailout and World Bank public work loans."

goldmiddelfinger's picture

Evening Jewel, Check The Label Top Queen Elizabeth II Challenge Cup Invitations


Evening Jewel, winner of this spring’s Central Bank Ashland (G1) and undefeated in three starts on the grass, and Check the Label, winner of this spring’s Appalachian (G3) here, top a list of 10 3-year-old fillies issued invitations to next Saturday’s 27th running of the $400,000 Queen Elizabeth II Challenge Cup (G1) at 1 1/8 miles on the Keeneland turf course.

Buttcathead's picture

I aint paying my house note but I am buying stocks.  I am gunna be rich.

goldmiddelfinger's picture

Silver Medallion in the 9th at Keeneland tommorrow but only at 15-1 or better

squidward's picture

Don't hate the player hate the game.  China is acting rationally in our messed up Bretton Woods system.  Why wouldn't they act in their best interest.   It's not like we don't exploit printing the worlds reserve currency. 

Scapegoating is the lowest common denominator in dealing with a crisis.