The History of Currency Wars and Global Stock Market Trends

1. The 1930s: The Great Depression and Competitive Currency Devaluations

Background: Countries engaged in competitive currency devaluations to boost exports, leading to a race to the bottom.

Key examples: The UK (1931) and the US (1933) abandoned the gold standard.

Stock market trends: 1929: Black Thursday in the US (the stock market crash).

Early 1930s: The Dow Jones Industrial Average fell by 89% (from 1929 to 1932). Despite temporary recoveries due to currency devaluations, the stock market remained in a long-term slump overall.

2. The 1970s: The Collapse of the Bretton Woods System and Dollar Instability

Background: In 1971, the Nixon Shock ended the gold standard, causing the dollar to become unstable.

Result: Transition to a floating exchange rate system, allowing for more flexible monetary policies across countries.

Stock market trends: 1973–1974: Coinciding with the first oil shock, this period saw global inflation and recession.

The US S&P 500 fell by more than 50% (early 1973 to the end of 1974).

Stock markets in Japan and Europe also experienced significant declines.

3. The 1980s: The Plaza Accord and Dollar Depreciation Policy

Background: The 1985 Plaza Accord saw major nations coordinate to guide the dollar lower.

Result: Rapid appreciation of the yen (1985: 1 USD = 240 JPY → 1988: 1 USD = 120 JPY).

Stock market trends: US: A weaker dollar benefited export companies, leading to a medium-term upward trend in stock prices.

Japan: Monetary easing continued amid the yen's appreciation, leading to the formation of an economic bubble.

The Nikkei 225 tripled between 1985 and 1989 (13,000 yen → 39,000 yen).

However, that bubble burst in the early 1990s.

4. Post-2008: Quantitative Easing after the Lehman Shock and Concerns over Currency Wars in Emerging Markets

Background: After the Lehman Shock (2008), the US Federal Reserve implemented large-scale quantitative easing (QE).

Reaction: This led to a weaker dollar, drawing criticism from emerging countries as a "currency war" (e.g., Brazil).

Stock Market Trends: Immediately following the 2008 Lehman Shock, global stock markets plummeted (the S&P 500 fell by approximately 50%).

2009–2014: Due to capital inflows from QE, US stocks recovered and reached new all-time highs.

Emerging Countries: While stock prices rose due to temporary capital inflows, the risk of capital flight remained a constant concern.

5. 2018–2020s: US-China Trade Friction and Currency Manipulator Designation

Background: Under the Trump administration, the United States accused China of being a "currency manipulator" (2019).

Result: Depreciation of the yuan, a stronger dollar, and uncertainty in the global economy.

Stock Market Trends: 2018: Global markets entered a temporary correction phase due to intensifying trade friction (the S&P 500 fell by approximately 20%).

2020: Global stock markets plummeted due to the COVID-19 shock, followed by a rapid recovery driven by monetary easing.

Summary

Currency wars refer to policy competition where countries intentionally lower the value of their own currencies to boost export competitiveness. Historically, during the Great Depression of the 1930s, countries engaged in competitive currency devaluations, causing stock markets to fall significantly. After the collapse of the Bretton Woods system in the 1970s, currency turmoil also negatively impacted stock prices. The 1985 Plaza Accord saw a dollar-depreciation policy that boosted US stock prices while triggering an economic bubble in Japan. The quantitative easing policies following the 2008 Lehman Shock faced backlash from emerging nations, and while stock markets fell temporarily, they subsequently recovered. Since 2018, US-China trade friction and tariff policies have led to stock market corrections and increased market volatility.