During hyperinflation, banknotes had lost so much value that they were used as wallpaper, being much cheaper than actual wallpaper.
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A currency war is a battle, but it's primarily economic. It's about economic policy. The basic idea is that countries want to cheapen their currency. Now, they say they want to cheapen their currency to promote exports. Maybe it makes a Boeing more competitive internationally with Airbus.

But the real reason, the one that's less talked about, is that countries actually want to import inflation. Take the United States for example. We have a trade deficit, not a surplus. If the dollar's cheaper it may make our exports slightly more attractive.

It's going to increase the price of the goods we buy — whether it's manufactured good, textiles, electronics, etc. — and that inflation then feeds into the supply chain in the U.S. So, currency wars are actually a way of creating monetary ease and importing inflation




Goldman Sachs
In 1921, Germany destroyed its currency. In 1925, France, Belgium and others did the same thing. What was going on at that time prior to World War I in 1914? For a long time before that, the world had been on what's called the classical gold standard. If you had a balance of payments, your deficit, you paid for it in gold.


That system was torn up in 1914 because countries needed to print money to fight World War I. When World War I was over and the world entered the early 1920s, countries wanted to go back to the gold standard but they didn't quite know how to do it. There was a conference in Genoa, Italy, in 1922 where the problem was discussed.


They could've doubled the price of gold — basically cut the value of their currency in half — or they could've cut the money supply in half. They could've done either one but they had to get to the parity either at the new level or the old level. The French said, "This is easy. We're going to cut the value of the currency in half." They did that.

If you saw the Woody Allen movie Midnight in Paris, it shows U.S. expatriate living a very high lifestyle in France in mid-1920s. That was true because of the hyperinflation of France. It wasn't as bad as the Weimar hyperinflation in Germany, but it was pretty bad. If you had a modest amount of dollars, you could go to France and live like a king.


That was a decision made by Winston Churchill who was Chancellor of Exchequer at that time. It was extremely deflationary. The point is, when you've doubled the money supply, you might not like it but you did it and you have to own up to that and recognize that you've trashed your currency. Churchill felt duty-bound to live up to the old value.


Economists today say, "We could never have a gold standard. Don't you know that the gold standard caused the great depression?"



That's when the world was put on a new monetary standard. Currency War II raged from 1967 to 1987. The seminal event in the middle of this war was Nixon's taking the U.S., and ultimately the world, off the gold standard on August 15, 1971.



Again, the lesson of currency wars is that they don't produce the results you expect which are increased exports and jobs and some growth. What they produce is extreme deflation, extreme inflation, recession, depression or economic catastrophe. This brings us to Currency War Three, which began in 2010.


That was the age of what we call "King dollar" or the "strong dollar" policy. It was a period of very good growth, very good price stability and good economic performance around the world. It was not a gold standard system nor was it rules-based.

The Fed did look at the price of gold as a thermometer to see how they were doing. Basically, what the United States said to the world is, "We're not on a gold standard, we're on a dollar standard.


Here we are and they're still continuing. That comes as no surprise to me.

A lot of journalists will see, say, the weak yen, and they'll say, "Oh, my goodness. We're in a currency war." And I'll say, "Well, of course we are. We've been in one for five years. And we'll probably be in one for five more years, even longer."
