The practicalities of the currency wars We have Weidmann worrying the currency wars are kicking off again with Japan leading the way and a whole host of others either joining in and/ or complaining hypocritically. And, of course, there's the euro which might be next into the "currency wars..." something we've written about before. Now, a cynic might note that complaining about other countries" currencies offers a handy distraction for domestically-challenged politicians. Nevertheless, there's a few things we'd like to note here. One: winning the "currency wars" isn't easy. From Citi's Steven Englander on Tuesday (his emphasis): Bottom line is that if the UK and Japan, among others, are determined to crowd in growth by boosting exports, their currencies will have to fall a lot more than is now priced in [W]hether you are a Japanese, US or UK policymaker, if a weaker currency is going to be the ticket to faster GDP growth, you have to be open to the possibility that you will need lots of it. You end up with a currency war, not because depreciations have such a big impact on activity, but because you need a big depreciation to get any significant impact. Two: "currency wars" is probably too deliberate a term for what is actually going on in the biggest economies anyway. For most of the big boys, weakening the currency is what might be termed a luxury concern. However, if there is, as there should be, a concentration on growth and/ or inflation going on in Japan, Europe and the US then smaller players may have be forced into running simply to stand still. That's where things can get messy and more direct methods might come into play. The fact is the bigger boys have just about always engaged in what one might term "soft currency wars" - less capital controls, more monetary easing - even if the effect on their currencies is not uniform. In many ways such actions are quite desirable in that they push liquiditiy out into a parched world and can be seen as collective monetary/liquidity easing. But, and this is the third point, problems crop up when you consider the flows and the side-effects of splashy easing from the bigger economies. We asked Englander about the "soft" versus "hard" currency war thesis (our emphasis): Problem is this - if you are China or another poor EM country and you ease to offset US ease, commodity prices run up double quick and you face a real inflation problem. US and UK are less vulnerable because the food component in CPI is smaller, they simply don't care about inflation and they are happy if domestic asset markets bounce up. So they benefit from these soft wars. If you are Canada or Australia you don't mind the run-up in commodity prices but you worry that Vancouver and Sydney real estate is more expensive than Mayfair - so soft currency war, if you respond, carries risks. Net, net - the soft war is less dramatic and more benign in short term but does not fully escape negative consequences if you are not a major economy, facing headlines to growth, with policymakers who are indifferent to both CPI and asset price inflation. Messy indeed. Neil Mellor from Bank of New York Mellon (with our emphasis) makes for a good sign off ahead of the G20 meeting in Moscow on February 14/15th and the great and the good meet in Davos. The point he essentially makes (we're taking some liberty we admit) is that the idea of heading into "currency wars" implies a "currency peace." When, in recent memory, was that again? Related links: IMF drops opposition to capital controls - FT Colombia, Peru and Costa Rica join currency war - beyondbrics Currency war: back again? beyondbrics