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How do wars affect the currency market

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As Russian troops started war operations in Ukraine, many are concerned about the economic consequences for both sides of the conflict and for the world in general. Since all sanctions have two-sided effects, and moreover, we have no idea yet who will get involved in the conflict.

The armed conflicts had a great effect on financial markets and the world economy at all times. To understand what the current events may lead to, let’s see examples of the modern wars and their effects on the currency market.

In this article, Reserveum Group specialists continue the cycle of research for the development of an effective and fair currency that could prevent the economy crash even in times of war.

For the past 30 years, war conflicts have had very similar consequences:

  • Lower GDP per capita as a result of destroyed enterprises and infrastructure and the outflow of the working people.
  • Higher government expenses for arming and army supplies, and also for restoring the infrastructure after the conflict.
  • Foreign investments retrieval due to higher risks for the foreign capital.
  • Domestic investments outflow from the conflict zones to the peaceful regions.
  • Higher external sovereign debt due to capital outflow and government loans from abroad.
  • Lower household expenses due to the population impoverishment and deficit of goods.
  • Lower export and import due to economic sanctions and idling enterprises.

All the listed war consequences result in:

  • Devaluation is when the currencies of the countries in conflict lose value compared to other countries’ currencies.
  • Inflation happens when the national currency’s purchasing power falls in the domestic market.

By the way, if you want to learn more about the nature of inflation, read our article “Why Do Cheeseburgers Get More Expensive”.

In most of the modern-time wars, national currencies devaluation was quite impressive due to destruction, lower export rates and foreign investments outflow, trade embargoes.

Currency devaluation rates due to war conflicts

According to the data from the Ukrainian Ministry of Finances, the devaluation and inflation rates for the Ukrainian hryvnia in January and February of 2022 were 104,3% and 101,3% respectively.

The example of Ukraine shows the result of a whole number of factors that are characteristic of any international conflict: territory and export markets loss, capital outflow.

Who benefits from wars?

War is a pretty chaotic process, and its consequences may have a significant and unpredictable effect on the international state of affairs and the world hierarchy. For instance, after World War I, two major empires, the Austria-Hungarian and the Ottoman, disappeared from the geopolitical map. World War II left two strong states, Germany and Japan, utterly destroyed and doomed for stagnation for many years. While, on the other hand, USSR and USA after 1945 turned into world leaders.

To find those who benefit from wars we need to understand that armed conflicts cause major reallocation of resources: capitals shift from the consumer sector, popular in the peaceful times, to the industries connected to arms and military logistics. Arms and military hardware producers are undoubtedly interested in any armed conflict and make a profit from it, while other sectors of the economy lose.

Speaking of the current events in Ukraine, the Kremlin’s politics resembles neo-imperialistic actions like situation destabilisation in arguable territories to gain control over them. But of course, we can’t get away from economic motives here either. It’s enough to take a look at the world’s markets and see considerable growth of fuel prices in January-February 2022 and a sharp fall of Bitcoin. And now another participant comes from the shadow, a third party that is almost always present in any war.

Who, apart from Russia, is interested in higher oil prices and the Bitcoin crash? I think you know the answer. The blatantly distant position of the USA towards all that is happening in Ukraine after their previous strong statements against this conflict, in a way, shows their interest in war. If it is true, then we are witnessing a real conspiracy plot of superpowers.

Read more about how dollar enslaved the whole world in our article called “Digital Concentration Camp”

Dollar felt danger from its potential rival, Bitcoin, and used well-known methods to shake up the world economy with shock therapy.

How to stop the dollar’s war hegemony?

Well, major countries’ leaders may think that this is a nice way to speed up the world economy and make another push for growth. But what is the price? War means thousands of deaths among the forces and citizens of all participant countries, their currencies devaluation and inflation that would bring these countries to a new verge of poverty. In the XXI century, there is no place for such scenarios. Humanity has everything it needs for prosperity and growth. The majority of people are not brave enough to go to the next level and refuse the old money system, so we are manipulated and are deprived of prospects of a good future.

Wars, crises, inflation, and many other problems may be prevented, all we need is a fair digital currency that no governments or oligarchs can influence. Such a currency will regulate its own emission through the smart contract, will maintain a healthy level of economic growth based on the consensus of the tokenholders.

According to the analysis group findings:


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