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Currency Manipulation and Currency Conflict: A Critical Assessment The Author’s Name The Institutional Affiliation Course Number and Name The Instructor Assignment Due DateIntroduction The global economy is moving towards digital infrastructure and virtual currency. The impact of conventional practices like currency manipulation remains a fundamental focus in modern economics while hosting the digital transformation in trade exchanges. Currency manipulation is a centralized practice by the government (Weldzius, 2021). Central banks undervalue or overvalue the trade balances to influence global exchanges and enjoy unfair leverage on partner economies. Large-scale countries like the United States of America (US), the People’s Republic of China (China), Japan, and the European Union (EU) are a few capital market players that indulged in malpractice to control the global trade trends (Weldzius, 2021). However, the transforming infrastructure and digital emergence unfold the controversial practice and question the monetary systems of the leading capital market players in the long run. This essay will explore the conventional and contemporary currency manipulation practices, the transition to currency conflict, and the fundamental concept of currency aggressor. The discussion will reflect on best practices and policies to neutralize currency warfare between countries, promoting harmony and fair opportunity distribution between economies. Currency manipulation is a malpractice that influences global trade sustainability and malfunctioning economic growth by violating monetary disciplines and restricting capital market access to limited countries. Discussion Currency: History of Manipulation and Conflicts The history of currency manipulation began during the ‘Currency War I (1921-1936),’ recording post-World War I (WWI) events that shaped the banking landscape for diverse countries. The global economy experienced turmoil between 1918 and 1921 after the signing of the Treaty of Versailles in 1919. The treaty forced Germany to pay repair expenses since WWI destabilized most European countries. As a result, Germany experienced hyperinflation since the Weimar Republic used an aggressive approach of money printing to settle repair expenses. The decision neutralized European currencies and influenced gold reserves (Rickards, 2012). Simultaneously, the United Kingdom (UK) made significant changes in redefining the currency market. Winston Churchill, the infamous hero of WWI, announced that the British government would restore the gold peg. The pegging was done at overvaluation in 1925, influencing the UK economy by reducing exports and other capital inflows. The events transformed into the Great Depression in 1929 when the gold rate reached its lowest and countries like the United States of America (US) entered aggressive devaluations. The warfare damaged global trade and triggered deficits. The British, German, and American governments continued money printing to overcome the crises (Rickards, 2012). Nonetheless, the Currency War I had significant economic impacts on leading WWI countries like the UK, US, and Germany. Politicians like Winston Churchill, Franklin D. Roosevelt, and Hjalmar Schacht introduced money reforms and disrupted currency valuations through policies. Unlike Churchill, Roosevelt and Schacht denied currency standardization against gold. As a result, Americans recovered by boosting the agricultural and manufacturing sectors. The British government suffered significant trade losses since the overvalued Pound Sterling reduced global demand for coal and textiles (Rickards, 2012). Subsequently, Currency War II (1967-1987) began after World War II. Unlike Currency War I, the Second War was more aggressive and strategic, positioning the US government in monetary control. The US spent significant funds in the Vietnam War. The spending strategy reduced gold reserves and exposed the dollar to overvaluation during the 1960s. President Richard Nixon announced that the foreign exchange (FOREX) market would operate on floating rates. President Nixon dismissed the USD-gold conversion practice to revert criticisms of currency overvaluation. Besides, Paul Volcker, the Chairperson of the Federal Reserve, increased the exchange rate to control rising inflation in 1979. The monetary policies backfired since the American Dollar attracted new competitors until 1985 (Rickards, 2012). Currency War II was further escalated after the Plaza Accord in 1985. The Accord involved major economies from WWII to joining forces and devaluing the American Dollar against Yen and Mark. The Accord was the brainchild of James Baker, the Secretary of the US Treasury during the 1980s. Baker envisioned that devaluation would make the American dollar a mutual instrument for global trade. The strategy worked since the American dollar became the valuation standard for international currencies. Instead, the dollar dominated the FOREX market performances and ensured sustainable economic growth for the US (Rickards, 2012). Nonetheless, the US government and politicians dominated the Currency War II, similar to the UK in Currency War I. Currency War II triggered social reforms since the American government introduced protectionist policies to reduce Black-White community conflicts and distribute equal resource accesses. However, the Japanese automotive sector was boosted during the Currency War II. Undervalued Yen continued exporting automotive and spare parts until the 1985 Plaza Accord (Rickards, 2012). Currency Manipulation Bergsten and Gagnon (2017) discussed the currency manipulation by exploring the ‘Decade of Manipulation (2003-2013).’ The authors argued that the global net cash flows accelerated to $1 trillion. However, over 50% of the reported figures were overstated since large-scale economies manipulated currency with trading partners to enjoy unfair leverage. Theoretically, currency manipulation involves tampering practices to overstate or understate the currency value to fulfill long-term economic goals and performance benchmarks. Countries performing currency manipulation experience inflationary impacts on the housing sector, disrupting the employment balance across diverse industries. Currency manipulation was the primary source of the ‘2007 Great Recession’ since large-scale economies like the US and China polarized global trade through malpractices and false reporting of actual monetary performance (Bergsten & Gagnon, 2017). Currency manipulation historically impacts global economies like the US, EU, and China. History confirms that currency manipulation led economies to the ‘1930 Great Depression’ and ‘China Shock,’ failing the infamous ‘Trans-Pacific Partnership (TPP)’ in the long run (Bergsten & Gagnon, 2017). Currency manipulation disrupts the market forces and reduces trade liberalization for countries by restricting unfair access to economic opportunities among limited nations. As a result, institutions like the ‘International Monetary Fund (IMF)’ and the ‘World Trade Organization (WTO)’ introduce strengthened fiscal and monetary policies to prevent countries from currency manipulation and encourage fair trade reporting to enjoy sustainable growth (Bergsten & Gagnon, 2017). Transformation to Currency Conflict Excessive currency m...