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The terrible experience of the 1930s should remind us that trade and currency wars go together like a horse and carriage.There has not been a full-scale currency war in quite some time, though the world came close after the 2008 financial crisis, when then-Brazilian Finance Minister Guido Mantega used the term to describe America's extraordinarily low interest rates. The first potential currency war of the 21st century gave way to an indecisive and fragile truce.Since then, the threat of a trade war has always implied the return of the currency debate. In today's escalating conflict, it was inevitable that Trump would eventually focus on other countries' monetary policies. He has long accused China of undervaluing its currency (even when it has been doing precisely the opposite). Still, in the view of John Maynard Keynes, one of the architects of Bretton Woods, the postwar arrangement should have gone further, by including institutional checks to penalize countries with large surpluses or deficits. Penalizing trade imbalances would have gone hand in hand with his plan for a new global monetary system, which would have been based on a universal synthetic currency called "bancor" (a French compound word for bank-created gold). The wider the use of a global currency (or multiple global currencies), the less viable a currency war becomes.
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