I. Currency war, also known as “competitive devaluation,” is an international situation
in which countries challenge each other in achieving a low exchange rate for their currency.
Recently, the most prominent conflict has been that between China and the United States over
valuating of the Yuan. This major focus is on China, due to fears that currency manipulation may
result in currency wars, and China’s gathering of more than $3 trillion in foreign exchange
reserves has evolved to the idea that it is purposely undervaluing the renminbi. As a result, the
U.S. and Europe have imposed trade sanctions against China for the reason that China failed to
allow its currency to modify properly with the market forces. When several countries make an
effort to devalue their currencies at the same time, and benefit from it, the result may well be
instability. Therefore, attempting to make gains through currency manipulation can result in an
unstable global market economy. Consequently, investment and trade could be discouraged,
which then limits growth. The emerging countries, such as China, are in a different
growth stage and can afford a fixed increase in their currencies. However, the rising currency
is intimidating because of the possible reduction in global competitiveness of exports. In the end,
the currency war will not only be China vs. U.S., but emerging vs. developed nations. The view
of various experts is that the idea of a currency war may bring the “early days of a trade battle”
generated by the power of emerging markets (CNBC). Solutions for the future involve
Chinese leaders participating in a prompt currency re-adjustment. In order to avoid undesirably
large amounts of inflation in China, suc...
... middle of paper ...
... the 2008 crisis, and consequently Latvia was able to record a surplus in
account. The increasing demand in wood and metal products were the exports that
fueled Latvia's recovery, and signaled that there would not be a major implication to
international trade. The U.S. and Latvian economic relations are quite progressive and
offer growing room. There are service industries such as telecommunications,
transport, and renewable energy technologies which are all areas for possible U.S.
and Latvian trade and investment.
c. This case does relate to my adopted country, Serbia, because just like Latvia,
Serbia also received loans from the IMF. Serbia’s agreement with the IMF guaranteed
Serbia receiving additional loans from the World Bank, as well as budget support
from the EU. At this time, Serbia is still in the process of qualifying to join the EU.
Shambaugh, David, “Lifting the EU Arms Embargo on China: An American Perspective”, Discussion paper prepared for the CSIS/SWP conference “China’s Rise: Diverging U.S.- EU Approaches and Perceptions,” Berlin, April 28-29, 2005
The final is the open-market operations, this is the purchase of securities or sale of bonds that are certified like finance policies in government.... ... middle of paper ... ... This would lead to other countries losing faith in the dollar, resulting in loss of trade and investors.
...lict. Neighboring countries will want to maximize their own revenues and in order to do so, they will set their own prices for goods and services.
In 2001 China entered the WTO it has made major stride in the world economy especially with trade agreements with the biggest capitalist economy and the biggest GDP and most developed country in the world the United States of America which has nearly 2.3 trillion of exported goods and service in 2013 (President, n.d.) When China entered in the WTO it had become the sixth largest economy and the largest market trade and was slightly ahead of Italy and just behind France. “China is third largest trading partner with the U.S and its trade surplus with the U.S. has increased to $201 billion around 2005 and by 2014 the total China-U.S. trade deals was 591 billion”. (Morrison, 2015) It had a global current account of $160 billion around 2005 (Hufbauer, Wong, & Sheth, 2006). As of 2015 “China is the U. S’s second largest trading company and the third largest export company and its biggest source of import”. (Morrison, 2015) Sales from a foreign affiliated U.S. firms in China totaled at 364 billion by 2013. (Morrison, 2015). What is also amazing is that China has the biggest U.S. treasury bonds and that keeps U.S interest rate low. Between 2010 to 2014 General Motor sold more cars in the Chine’s market than in the U.S. market and many U.S. firms participate in Chinese market to stay globally competitive. (Morrison, 2015). This kind of
...e economy. Since China and the United States have interconnected economies instability in China could lead to problems in the United States.
Deliberate fixing of the exchange rate or preannounced rates of depreciation below the prevailing rates of inflation, have been adopted in various countries to break inflation. The experience has been almost unif...
Despite the fact that recent reports have shown that the Chinese currency is currently facing descending pressures, it is, however, likely to improve in the future because of the enhanced terms of trade, current account surplus that is growing, and high net saving. Another reason that will make the Chinese RMB to do well in the future it is because the currency has solid fundamentals and the economy of the country is significantly increasing at a higher rate than the GDP rates. Due to the growing Chinese economy to being the second largest economy, the Chinese currency yuan has been acknowledged by the International Monetary Fund (IMF) as a major global
stability and uphold the value of the dollar. The Fed is able to make the necessary
The massive increase in the Chinese trading relations was fueled by the United States in the year 1979 through the normal trade relations between the two countries. In addition, the Chinese non-concession to the World Trade Organization (WTO) in the year 2001 also facilitated its trading activities with different countries including the United States (Kaplan, 57). However, trading relations with the Chinese have been uneasy resulting from the massive trade imbalances in the recent past, which grows exponentially. The protectionist policies of the United States especially in Washington and Beijing have been putting pressure on the Chinese to revalue their currency as well as protecting it from counterfeits, which may be of adverse effects to the trading relations. This paper gives a comprehensive discussion on the foreign trade relations with china. It further gives an elaborate discussion on the impacts of foreign tr...
All three countries have political, economic, and national security issues involved and the United States and China are both in competition economically and militarily to be the greatest superpower in the world. All three countries have vowed to defend their national interest militarily; however, the prospects of going to war for any of the three are perilous indeed and the conflicts between China and Taiwan have continued into the early 21st century. .
Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...
From the beginning of their establishment, the bilateral relations between the United States of America and China have changed throughout the time. The bilateral relations between the two countries emerged in the 1970’s with the ‘Ping-Pong’ diplomacy and there have been many pauses in their mutual relations. The US and China enjoyed cooperation in economic and military spheres and the mutual relations grew massively during until the end of 1990’s. The heads of the two states began visiting each other’s countries and the economic ties were tightening year by year. However, the issues of human rights and free speech declined mutual Sino-American relations.
...price and devaluation of the domestic currency to bring it back to A from A’ the country has to sell off its Foreign assets.
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
The U.S. dollar is used in most international transactions, and so what happens to the U.S.A. economy will be affected by the international financial resources.