Currency Wars: The Making of the Next Global Crisis

by James Rickards

Overview

Published in 2011 by Portfolio/Penguin, this book by James Rickards -- a lawyer, economist, and financial threat advisor to the U.S. intelligence community and Department of Defense -- provides a sweeping analysis of currency competition between nations and its potential to trigger a global financial crisis.

Part One: War Games

The book opens with a vivid account of a financial war game conducted at the Pentagon's Applied Physics Laboratory, where Rickards participated as an advisor. This simulation explored how nations might use currency manipulation, gold hoarding, and financial instruments as weapons.

Part Two: Three Currency Wars

Rickards identifies three distinct periods of currency warfare:

• Currency War I (1921-1936): The post-WWI era of competitive devaluations, the gold standard's collapse, and the beggar-thy-neighbor policies that deepened the Great Depression.
• Currency War II (1967-1987): The collapse of Bretton Woods, Nixon's closing of the gold window, the petrodollar system, and the dollar's devaluation.
• Currency War III (2010-present): The current era of quantitative easing, competitive devaluation by major central banks, and the erosion of the dollar's reserve currency status.

Part Three: The Next Global Crisis

Rickards explores potential endgames: continued dollar dominance, the rise of Special Drawing Rights (SDRs) as a world currency, a return to some form of gold standard, or monetary chaos. He discusses the role of complexity theory in understanding financial systems and argues that the current system is far more fragile than policymakers acknowledge.

Investment Implications

Rickards advocates gold as a hedge against monetary system instability and provides analysis useful for forex traders, macro investors, and anyone seeking to understand the geopolitical forces driving currency movements.