Is a currency war worth it?

The People’s Bank of China allowed the RMB to depreciate almost 2 percent against the U.S. dollar in August. South Korean Won also depreciated against the U.S. dollar in July. The Malaysian Ringgit and Indonesian Rupiah, both of which have already depreciated significantly against the US dollar this year.
The valuation of currency is a very delicate science. Every move in either direction will cut both ways. Depreciation may help export, but it will hurt import at the same time. Without export, you cannot make money to consume, but without import, you have less to consume.
What is the purpose of making money? People earn money to make a living. People need food, clothing, houses, transportation, education and entertainment to sustain existence. You need to purchase materials from the market. In the era of globalization, it is inevitable somethings need to come from abroad. When your own currency depreciate, you are basically providing cheap labor and materials to foreigners, which means you need to work harder to sustain a lower living standard. Why not taking advantage of the lower cost of import to stimulate domestic consumption?
This approach might not work in that the increase in domestic consumption might not be able to compensate for the losses in production for export. But for an economy with a bigger domestic market, appreciating against the trend is not necessarily a bad thing. The balance between apreciating and deprecitating is quite subtle. It takes not only wisdom but also composure to strike the right balance. But a currency war is definitely not what we look forward to.


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