Currency Wars

Case Solution

Laura Alfaro, Hilary White
Harvard Business School ()

In February 2013, the G20 finance ministers met in Moscow to discuss growing fears of a possible international currency war. It has been speculated that some countries are deliberately devaluing their currencies to improve their competitiveness in world markets. Emerging economies claimed that expansionary monetary policies by major central banks such as the US Federal Reserve, the European Central Bank, and the Bank of England led to significant and damaging side effects such as currency appreciation, declining exports and rising inflation in less developed economies. On the contrary, the main central banks insisted that such a policy was necessary to reactivate economic growth at home and abroad. Would these measures successfully lead to a revitalization of growth? Can an expansionary monetary policy be considered as a “beggar-neighbor” action of the emerging countries? How should developing countries react?

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