Trade Balance Deficit
Trend In Currency Manipulation Threatens Global Economy
Spurred on by China’s blatant refusal to conform to the international system, currency wars are being began across the globe by nations struggling to boost their economies with exports. China has been on the receiving end of mounting U.S. pressure to force the communist government to open the yuan to free market forces. Many other countries, including Japan, Brazil, Switzerland and Israel are trying to drive down the value of their currencies to improve exports. Concerned policymakers call currency wars a risk to global economic recovery and are calling for a spirit of international cooperation.
Currency war leaves no winners
The prospect of a full-scale currency war seemed close Thursday when the dollar fell to an eight-month low against the euro and the U.S. ratcheted the pressure up further on China to let its yuan rise. The global economy does worse when countries manipulate currencies for their own economic advantage, reports the BBC. With unilateral action, one central bank starts a riot. Other parts of the world are now conflicted. Japan wanted to make its goods cheaper in the U.S. so it weakened the yen. The U.S. currency dispute with China just got worse when this happened since the dollar got stronger and the exports rose.
U.S. dispute with China drags in Europe
Congress has one plan. This involves heavy artillery though. Legislation had been approved by the House, reports the Associated Press. This would make it so there were economic sanctions on any country manipulating currencies to get an edge on trade, like China. Hoping to create positions, U.S. manufacturers want to make the dollar fall up to 40 percent against China’s yuan. Investors are expecting the Federal Reserve to try weakening the dollar by printing billions of dollars in new money. A global economy is still a problem though. Europe is mad the Euro may rise due to that action.
Why it would be bad to manipulate currencies
This weekend, the International Monetary Fund is meeting in Washington in order to diffuse the currency wars. However, David Sterman at Investing Answers said the real solution is for the world to change its consumption habits. The global economy will function better if countries like China and Japan increase domestic consumption in order to reduce trade supplies. This is what Sterman says. Countries like the U.S. should export more to cut back trade deficits. President Obama has the right plan. He wants to, in the next five years, double U.S. exports. To do that, he needs China, Japan and also the rest of the world to cooperate.
Articles cited
BBC
bbc.co.uk/news/business-11484532
CBS Denver
cbs4denver.com/wireappolitics/Tensions.over.currency.2.1951356.html
Investing Answers
investinganswers.com/a/currency-wars-why-these-four-countries-are-racing-bottom-1894
Trade deficit, Greece, jobs bill, Fed
