Currency wars can have detrimental effects on the global economy from "summary" of International Money and Finance by Michael Melvin
Currency wars can have detrimental effects on the global economy. When countries engage in competitive devaluations to boost their exports and stimulate economic growth, it can lead to a race to the bottom. This can create a vicious cycle of devaluations and retaliatory actions, ultimately resulting in a beggar-thy-neighbor scenario where no country benefits in the long run. As countries devalue their currencies to gain a competitive edge, it can lead to increased volatility in the foreign exchange markets. This volatility can disrupt international trade and investment flows, making it harder for businesses to plan and allocate resources effectively. Uncertainty in the currency markets can also deter foreign investment, as investors become wary of the risks associated with unstable exchange rates. Moreover, currency wars can have spillover effects on other countries and regions, creating instability in the global financial system. When major economies engage in devaluation policies, smaller and emerging market economies may be forced to respon...
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