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Technology & Innovation

Explaining Currency Wars

Why are countries clashing over the relative values of their currencies? Peter Dizikes at the MIT News Office examines the ideas behind a competitive money market.

This month’s G-20 meeting of industrialized countries was rife with talk of potential “currency wars,” in which states try to devalue their currencies to help their economies. While a central tension is the United States’ unhappiness with China’s undervalued yuan, the issue is really hydra-headed: One country’s actions can create many reactions globally. Currency policies are a particularly hot topic because the United States can no longer try two traditional remedies for a sluggish economy: government spending, because the political tide has turned against it; and lower short-term interest rates, because they’re already effectively at zero.


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