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Opinion
Robert Burgess

The Currency Wars Are Starting to Flare Up Again

Mario Draghi’s hints about stimulus leads financial commentary.

Trade wars could turn into currency ones as well.

Trade wars could turn into currency ones as well.

Photographer: Peter Parks/AFP/Getty Images

In 2010, when major central banks began debasing their currencies by slashing interest rates to near zero — or even below — and printing money to buy financial assets, Brazilian Finance Minister Guido Mantega famously labeled the moves nothing less than a “currency war.” Such talk died down in 2017 and much of 2018 as the focus turned to a synchronized global economic recovery, but Tuesday showed the war may be coming back in a big way.

The Bloomberg Euro Index fell after European Central Bank President Mario Draghi said that “ additional stimulus will be required” if the economic outlook doesn’t improve. U.S. President Donald Trump quickly accused Draghi of deliberately trying to weaken the euro, thereby “making it unfairly easier” for the euro zone to compete against the U.S. Draghi responded by saying the ECB doesn’t target the exchange rate. Draghi’s right, but he also knows that all else being equal, easier monetary policy tends to lead to a weaker currency. In many ways, central banks and government officials have few other choices than to seek a weaker currency to make their economies more competitive. It’s been a decade since the Great Recession, and despite a prolonged period of interest rates near zero or below and many trillions of dollars injected into the financial system through asset purchases by central banks, the global economy has yet to achieve anything akin to escape velocity. In fact, the International Monetary Fund is projecting the slowest pace of growth since 2009. There’s even a growing belief that the U.S. has abandoned its long-held strong dollar policy. Indeed, Trump has often voiced his preference for a weaker dollar, which ties into his demand that the Federal Reserve and Chair Jerome Powell lower interest rates immediately. Citigroup’s economists pointed out in a research note Tuesday that during a recent trip to Europe, a common question among clients was whether the Trump administration would actively aim for a weaker dollar in coming months.