Using the present subjective standard in place of gold or other independent monetary standard has a number of disadvantages. It leaves the pricing in the hands of the country which changes it, forcing other nations to make compensatory changes if the volume disturbs trade. It can then prompt discord, by disturbing other currencies, leading to a ripple effect. All of these changes can prompt nations to create artificial pricing, to the disadvantage of countries which attempt to maintain fair evaluations, potentially starting trade wars, or even actual ones. In the long run, it inhibits realistic pricing of goods.
Left to themselves, three forces seek a permanent equilibrium: the real price of international goods, prevailing interest rates between the affected nations, and internal interest rates between different goods or services within the individual nation. In the very long run, prices re-adjust toward equilibrium. But the short-run effects can be temporarily highly disruptive. That is, one or two of these changes may seem expedient, but the disturbance hurts other nations, and in the long run the original prices return to where they started. The disruption can sometimes be severe, and the industries which are rescued are balanced by those which are harmed. The usual temptation is for an aggressor nation to help its own failing industry by (artificial lower prices) harming similar industries in other nations; and later for the consumers within the injured nation to retaliate by harming some of its own consumers at first, but later shifting harm back to consumers within the aggressor nation if they can. Quite often it is innocent bystanders who are hurt the most, in opposition political politics, or in unfriendly nations. Someone always gets hurt.
Originally published: Tuesday, January 10, 2017; most-recently modified: Thursday, June 06, 2019