Currency Wars | James Rickards

Summary of: Currency Wars: The Making of the Next Global Crisis
By: James Rickards


Delve into the world of economic battles and the complex relationship between currency and national security with James Rickards’ ‘Currency Wars: The Making of the Next Global Crisis’. The book provides a comprehensive look at the history of financial conflicts, the impact of currency manipulation, and the increasing threats to the global economy, including the destabilization of the U.S. dollar. Explore how the intertwining of national wealth and national security has led to unique scenarios and strategic decisions within the world economy. The book provides valuable insights into the increasingly interconnected global economy and the rising risk of financial attacks.

The New Threat to America’s Wealth

The US military power’s foundation lies on sophisticated technology, elusive espionage, and complex war systems. However, the US now faces new and peculiar dangers from transnational actors and rival nations, such as jihadist groups. These threats include chemical, biological, and internet-based attack systems. Moreover, the unexpected twist is the threat of financial weapons that can lead to fiscal aggression or computer manipulation or international economic foundation collapse. In reaction to possible financial attacks, the Pentagon developed a global financial war game to identify and assess the extent of the threat. The players consisted of international policy experts, Wall Street professionals, military brass, and Department of Defense staff. During the exercise, the players divided into competing teams with region-specific objectives and scripted political moves. Russia, one of the opponents, demanded payment for energy exports in a new gold-backed currency, supported by other countries such as Japan and China. The players acted buying gold and dumping the US dollar on the international market, whereas North Korea flooded the global market with counterfeit dollars. The exercise revealed that despite any successful attack on the dollar, the US held enough gold reserves in military facilities to survive a fiscal war.

The Ugly Truth About Currency Wars

Competing currency devaluations can lead to global fiscal meltdowns and military strikes. This book highlights the negative impact of devaluing currencies, from sparking trade wars to causing the Great Depression of the 1930s. But such conflicts still persist, with the US, Mexico, Russia, UK, and more recently, China, accused of currency manipulation. The consequences of currency wars can be catastrophic, leading to inflated oil prices, high inflation rates, and a collapse in dollar-denominated markets. The book cautions against the dangers of currency battles and emphasizes the need for international cooperation.

The Rise and Fall of Gold Standard

In the era from 1870 to 1914, countries used gold as the basis for international trading, leading to zero inflation and improved standards of living in what historians call “the classical gold standard.” Nations obeyed the guidelines of an unwritten “gold club” and adhered to free-market principles to stabilize international prices and adjust trade deficits. The US joined this club in 1900 and was followed by Japan, Germany, Russia, Argentina, and India, among others. However, World War I marked the start of the end of the gold standard era, leading to the first of three global “currency wars” that played out over the 20th century and beyond. Overall, the gold standard provided a system that strengthened communication, technology, banking, finance, and trade, and improved mobility and productivity.

The Evolution of Currency Wars

After World War I, Germany used hyperinflation and devaluation to reignite its economy, causing a cycle of currency devaluations amongst nations. The result was financial disarray and global depression, culminating in the US stock market crash of 1929. The Tripartite Agreement of 1936 and the Bretton Woods pact of 1944 restored economic stability by tying the US dollar to the price of gold. However, the use of currency wars as a tool for boosting economic growth has been a problematic recurring theme in history. At best, these wars offer the sorry spectacle of countries stealing growth from their trading partners, and at worst, they degenerate into bouts of inflation, recession, retaliation, and violence. The evolution of currency wars highlights the interconnectedness of today’s global economy and shows the potential risks of monetary policy decisions.

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