140 THE BiG DROP
of trading losses by banks and investors around the world.
Several foreign exchange brokers went bankrupt because
their customers could not settle their losing trades. The Swiss
operated in total secrecy.
Currency wars resemble real wars in the sense that they do
not involve continuous fighting all the time. At certain times,
there are intense battles, followed by lulls, followed by more
intense battles.
But there is nothing new about the Swiss National Bank’s
move. It’s the latest salvo in the currency war that President
Obama started in 2010, and it won’t be the last. It was in 2010
that the president announced his National Export Initiative
designed to double U.S. exports in five years.
The only way to do that was with a cheaper dollar, so the
president’s policy amounted to a declaration to the world that
the U.S. wanted other countries to let their currencies go up
so the dollar could go down. Ten months later, the Brazilian
finance minister, Guido Mantega, shocked global financial
elites by publicly proclaiming what everyone knew but no one
would say — that the world was in a new currency war.
The problem with currency wars is they last a long time
— sometimes even 15 or 20 years. The reason is they have
no logical conclusion, just back-and-forth devaluations and
revaluations as countries retaliate against each other.
We have seen this seesaw pattern re-emerge. The weak
dollar of 2011 has turned into the strong dollar of 2015.
Countries that complained the weak dollar was hurting their
exports in 2011 now complain that the strong dollar is hurting
their capital markets in 2015.
That’s the other problem with currency wars — no one
wins, and everyone loses. Currency wars don’t create growth;
they just steal growth temporarily from trading partners until
the trading partners steal it back with their own devaluations.
The surprise revaluation of the Swiss franc on Jan. 15 will