The Most Dangerous Effect Of A Currency War Isn't Hyperinflation or Devaluation

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A race to competitively devalue currencies even further would lead to global crisis, says European central banker Juergen Stark.

Yet this crisis has nothing to do with hyperinflation or trashing the value of currencies, as many believe is the inevitable crisis.

It’s that competitive devaluations would lead to the erection of defensive trade barriers, which would cause economic activity to contract as they have in the past.

“It would be fatal to enter a race to devalue, which in the end will bring about protectionism. Protectionism in the 1930s is what led to the global economic crisis,” he said to the German business paper Handelsblatt according CNBC.

It seems any crisis would thus be one of protectionism, not a currency crisis.

We probably wouldn’t even get far enough in the competitive devaluation process to hit a true currency crisis, since new trade barriers would quickly make devaluing one’s currency useless as an export strategy.

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