PHOTO CREDIT: (Dollar Photo Club)
A currency war, also known as competitive devaluations, is commonly defined as a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies.
As the exchange rate of a country's currency falls exports become more competitive in other countries, and imports into the country become more expensive causing that nation's citizens to buy products made inside their own country..
Both effects benefit the domestic industry, and thus employment, which receives a boost in demand from both domestic and foreign markets.
A currency war refers to a situation where a number of nations seek to deliberately depreciate the value of their domestic currencies in order to stimulate their economies.
Although currency depreciation or devaluation is a common occurrence in the foreign exchange market, the hallmark of a currency war is the significant number of nations that may be simultaneously engaged in attempts to devalue their currency at the same time.