Currency Wars_ The Making of the Next Global Crisis - James Rickards [76]
If the G20 was like a massive army, the G7 had shown it could still play the role of special forces, acting quickly and stealthily to achieve a narrowly defined goal. The G7 had turned the tide at least temporarily. However, the natural force of yen repatriation to Japan had not gone away, nor had the speculators who anticipate and profit from such moves. For a while, it was back to the bad old days of the 1970s and 1980s as a small group of central banks fended off attacks from speculators and the fundamental forces of revaluation. In the larger scheme of things, Japan’s need for a weak yen was a setback to the U.S. plan for a weak dollar. The classic beggar-thy-neighbor problem of competitive devaluations had taken on a new face. Now, in addition to China, the United States and Europe all wanting to weaken their currencies, Japan, which had traditionally been willing to play along with U.S. wishes for a stronger yen, found itself in the cheap-currency camp too. Not everyone could cheapen at once; the circle still could not be squared. Ultimately the dollar-yen struggle would be added to the dollar-yuan fight already on the G20 agenda as the world sought a global solution to its currency woes.
PART THREE
THE NEXT GLOBAL CRISIS
CHAPTER 8
Globalization and State Capital
“It is a doctrine of war not to assume the enemy will not come, but rather to rely on one’s readiness to meet him; not to presume that he will not attack, but rather to make one’s self invincible.”
Sun Tzu, The Art of War,
Late fifth century BC
Historically a currency war involves competitive devaluations by countries seeking to lower their cost structures, increase exports, create jobs and give their economies a boost at the expense of trading partners. This is not the only possible course for a currency war. There is a far more insidious scenario in which currencies are used as weapons, not in a metaphorical sense but in a real sense, to cause economic harm to rivals. The mere threat of harm can be enough to force concessions by rivals in the geopolitical battle space.
These attacks involve not only states but also terrorists, criminal gangs and other bad actors, using sovereign wealth funds, special forces, intelligence assets, cyberattacks, sabotage and covert action. These financial maneuvers are not the kind that are the subject of polite discussion at G20 meetings.
The value of a nation’s currency is its Achilles’ heel. If the currency collapses, everything else goes with it. While markets today are linked through complex trading strategies, most still remain discrete to some extent. The stock market can crash, yet the bond market might rally at the same time. The bond market may crash due to rising interest rates, yet other markets in commodities, including gold and oil, might hit new highs as a result. There is always a way to make money in one market while another market is falling out of bed. However, stocks, bonds, commodities, derivatives and other investments are all priced in a nation’s currency. If you destroy the currency, you destroy all markets and the nation. This is why the currency itself is the ultimate target in any financial war.
Unfortunately, these threats are not given sufficient attention inside the U.S. national security community. Bill Gertz, reporting in the Washington Times, noted, “U.S. officials and outside analysts said the Pentagon, the Treasury, and U.S. intelligence agencies are not