Matthew O’Brien claims that competitive debasement is good for the global economy:

Currency wars get a bad rap. The trouble starts with that second word. Wars, as we all know, are very bad. And a currency war — where countries compete to lower their exchange rate to boost their exports — reminds people of the kind of trade protectionism that killed some economies in the 1930s. But currency wars are the best kind of war. Nobody dies. Everybody can profit. In fact, currency wars didn’t contribute to the Great Depression. They ended it.

The downside of devaluation is that no country gains a real trade advantage, and weaker currencies means the prices of commodities like oil shoot. But — and here’s the really important part — devaluing means printing money. There isn’t enough money in the world. That’s the simple and true reason why the global economy fell into crisis and has been so slow to recover. It’s also the simple and true reason why the Great Depression was so devastating. We know from the 1930s that such competitive devaluation can turn things around.

The world needs more money. Currency wars create money. It’s time for policymakers to forget the wrong lessons from history, get competitive, and start pushing down their currencies.

Since the last recession every major central bank in the world has fluffed up its balance sheet with purchases, pushing out new money into the system, and driving down exchange rates. So we already have a currency war.

The most obvious point is that the last thing the global geopolitical system — already knotted and twisted — needs is more strain, or more abrasions, and to some degree a currency war could strain relations. The biggest players in the developing world — China, Brazil, Argentina, India — are already experiencing elevated inflation. China and Russia and Brazil have all recently expressed deep unease at America’s policy.

Under such conditions, is it not reasonable to foresee that greater competitive debasement might lead to a full-blown trade war? An easy means for developing nations to stanch the decline in dollar-denominated holdings (FOREX, Treasuries, etc) would be to constrain the flow of dollars coming into their nations. How might that be done? Export quotas, and capital controls. I have long been of the view that the hyper-productive Eurasian nations do not “need” American consumption when they already have a big enough dollar hoard to recycle in domestic and regional consumption. America’s real economy is not being sustained by The Fed (that is sustaining the financial system), but rather by the ongoing free flow of goods and resources and energy from the developing nations to America. That’s the main reason why America spends so much money policing the world, to keep global trade flowing, and goods flowing into America. America consumes far more than she produces in terms of energy, in terms of finished goods, and in terms of components.

Simply, America has enjoyed a humungous free lunch on the back of the dollar’s reserve currency status. Nations throughout the world were willing to trade out their productivity, their resources and their energy for dollars, the international medium of exchange. America could sit back and diversify out of domestic productivity and into unproductive but nominally-higher-yielding financial services, consultancy, communications and entertainment. But dollars are no longer in such short supply; America has traded trillions and billions of them away. So some nations appear to be asking: Why do we need dollars? Why should we subsidise the Americans, when our own people go without? And of course, the Eurasian ASEAN bloc — and all the various new bilateral currency agreements, where Eurasian nations have agreed to ditch the dollar, and instead trade in their respective national currencies — is growing precisely to further this end, to diminish the American economic hegemony, and end the American free lunch. A series of currency wars could very easily be the thing that pushes the system into chaos.