Currency wars fail to spark global growth Six years after the financial crisis ended, the global economic recovery remains anaemic. Fiscal stimulus could not be used to redress the situation due to fiscal gridlock in Washington, lack of agreement on policy across the eurozone, and the already high debt-to-GDP ratio in Japan. By default, competitive devaluations stemming from successive quantitative easing programmes have become the stimulus instrument of choice. Such currency wars have boosted equity markets without a simultaneous pick-up in global economic growth. The US began QE late in 2008. Successive programmes resulted in the Federal Reserve's balance sheet quintupling from $800bn in September 2008 to $4.5tn today. With each new programme, the dollar fell as investors perceived that too many dollars were chasing other currencies. The dollar index, a measure of the currency's relative strength against a basket of six other major currencies, hit a low in April 2011. European Central Bank President Mario Draghi has actively talked down the euro in recent weeks, as his July 2012 pledge to "do whatever it takes" to save the euro triggered a reduction in regional bond yields but not a eurozone recovery. The ECB now plans to purchase €1tn in loans and mortgages over the next two years, hoping the increased bank reserves will be channelled to the private sector. The euro has fallen from $1.31 at the beginning of September to below $1.24. In Japan, a weaker yen resulting from a massive dose of monetary expansion is a key plank of Abenomics. Bond-buying efforts since early 2013 could not forestall a 7.1 per cent decline in GDP in the second quarter of this year. The Bank of Japan surprised markets by announcing recently that it would increase asset purchases by as much as a third, even though the BoJ's balance sheet as a percentage of GDP is already more than twice as large as in the US. Again, the exchange rate goal was met. The yen promptly fell to its lowest level in seven years. The common thread to all these measures is the belief that currency depreciation would be a precursor to a pick-up in exports and faster economic growth. Unfortunately, playing with exchange rates is a zero-sum game: your currency weakness is my currency's strength, and vice versa. Any benefit to the depreciating country would be fleeting as trading nations fight back with similar measures. The proper way to stimulate growth would be to implement structural changes that would expand world trade. The first of these is to open market segments that were previously closed to competition. For example, over the past two decades successive US Treasury secretaries have urged China to raise the pace of renminbi appreciation under threat of being named a "currency manipulator" by the US government. Such measures failed to reduce China's trade surplus. US officials would have had more success expanding US exports if they had focused on enabling US companies to bid competitively for Chinese contracts. Emphasis on a faster renminbi appreciation shifted attention from such efforts. The latest Japanese measures to expand the monetary base are unlikely to provide better results compared with what Abenomics has achieved so far. While the yen weakened from 107 to the dollar on October 27 to 115 recently, that will do little to solve Japan's problems. An ageing population and areas closed to foreign competition call for structural solutions rather than a monetary one. Japanese authorities will have greater success accelerating the pace of growth and raising the inflation rate if they allow increased inflows of younger skilled workers. This would lower the median age in Japan from 46 currently, expanding aggregate demand. Limiting the influence of domestic oligopolies that discourage competition and production would enable newer, more productive companies to take their place. Finally, the Indian rupee has strengthened from almost 70 to the dollar in August 2013 to 61 recently without hurting growth. Favourable investor reaction to a new market-friendly central bank head, and the electoral victory of a government focused on reducing bureaucracy and corruption, were more powerful than shifts in the exchange rate. Currency wars are ultimately destructive. Structural changes would be the lasting way to boost global growth. Komal Sri-Kumar is president of Sri-Kumar Global Strategies