These assets will lose value in proportion with the revaluation of the Yuan. This is only the beginning of China’s revaluation. China will be repeatedly pressured to institute a larger revaluation. The managed float allowed them to gradually adjust the value of the Yuan without major sudden changes to their economy. Central banks worldwide are going to be eager to take the Yuan as a reserve currency because it is guaranteed to go up in relative value.
The results suggest that Latin American firms increase their debt levels when inflation rises because in inflationary periods nominal liabilities, such as debt, depreciate in value, thus, become more attractive to the borrower. The ratio of stock market capitalization to GDP has a negative relation with all the dependent variables, as the capital market develop become a viable alternative; firms will tend to use less debt. On the other hand, the ratio of deposit money bank to GDP displays a positive relation with leverage - as the banking sector increases, firms will have more incentive to use more debt. For both variables, the results concur with Booth et al. (2001) and with Agarwal and Mohatadi (2004).
In addition, manipulation of currencies and the impact toward one economy could be reduced because of the fact that gold does not inflate in value as it is a commodity and, thus, has an intrinsic value. Dr. Mahathir Mohamad said that gold was also open to some risk of speculation but it was safer than conventional currency which had no intrinsic value and could be manipulated indefinitely (The Star, 2002). All these problems arise because the world went off the Gold Standard. In the International Conference on Gold Dinar Economy 2007, Tun Dr Mahathir noted that in the case of paper people will have risk in losing their value and also purchasing power. He stressed back that only Gold Dinar really has a value in it.
According to the New Classical Model, economic growth can be achieved by accumulating labor, capital and other factors of production. Since all these factors experience diminishing marginal returns, the economy can only achieve a steady equilibrium income through continuous increase in saving and investment but at the same time reduce population growth. However, a policy that helps to increase both savings and investment but at the same time reduce population growth especially in developing countries is difficult to be implemented. This was supported by Blomstrom and Kokko (2003) who claimed that developing countries have low-income that lead to low savings with higher population growth rates. Solow (1956, 1957) also recognized the importance of technical progress as a determinant of economic growth.
However, a limiting factor towards continuing accelerated growth with in high income nations continues to be the maintenance of an economy’s external stability, in particular preventing the blow outs of net foreign debt and equity over the business cycle, which might affect the international confidence in the management of the particular economy. Therefore globalization on the whole has come as a benefit throughout the world, yet these benefits are still heavily weighed towards the already rich nations, while the developing economies struggle to maintain growth on par with the higher income nations, resulting in the evident contrast in quality of life between there “classes” of nations in the global economy.
Lewis views these danger as justified, however, if the purpose of creating new money is to create new capital to invest; the consequential inflation will be “self-destructive” and may even lead to lower prices (79). By investing the newly created money, production and output increase. Creating capital, therefore, leads to higher input and investment that subsequently increases output and lowers prices. While inflation through creating money temporarily lowers other’s incomes, it increases profit and output until equilibrium is reached (78). Thus, a smaller capital-output ratio, or the production time relative to the initial investment, is preferred to avoid panic and price rises.
Empiri... ... middle of paper ... ...hat idea from functioning properly. From the evidence and statistics it looks like globalisation did more harm to developing nations than it did good. That might be because bigger countries can manipulate IMF, World Bank and WTO to their own advantage without actually breaking any rules. To me, globalisation just seems like a peaceful way for rich countries to rob and exploit poor countries. I agree that in some developing countries globalisation was beneficial and boosted their economics growth, but there are not that many examples of that, I would say that those countries are an exception because according to World Bank statistics the majority of LEDC’s with strong import liberalization have experienced anemic or negative growth over the past 20 years.
John Taylor, creator of the seminal rule of monetary policy, agrees with this assessment, additionally citing the statistical insignificance of the 2001 and 2008 tax rebates at increasing consumer s... ... middle of paper ... ...n inaccessible in the current recession. Additionally, a large fiscal stimulus can reduce loan defaults, increasing liquidity and reducing the need for exceptional lending programs at the Federal Reserve. With the possibility of a double-dip recession still looming, prudent fiscal policy calls for a stimulus that will smooth GDP growth for several years. During a normal recession, critics would be correct in their claims that monetary policy would be ideally suited to smoothing the business cycle. However, due to the financial crisis, many standard monetary tools have been exhausted, necessitating extraordinary fiscal stimuli.
Introduction There have been numerous calls by the US policy makers for China to allow its currency to float freely. Critics have pointed out that China policy of manipulating its currency preventing it from appreciating has given its manufacturers undue advantage. Both goods sold domestically and those exported by Chinese Manufacturer are relatively cheaper than those of manufacturers from economies whose Chinese currency is undervalued against; especially the US. This aspect has been accused of contributing majorly to the annual large US trade deficits. Probably due to pressure, China has been allowing its currency to appreciate.
Therefore, the demand for Chinas exports are high, whereas t... ... middle of paper ... ...to the depreciation of the Yuan, Chinas export industries now become more competitive, thus their export revenue will increase and in turn the demand for domestic labor increases, leading to less unemployment and an improvement on the economic performance. As it says in the article “end intervention…widen trading band…”, China strives for a “more freely floating” exchange rate system. This would improve China’s economy in terms of its financial account deficit, as a result of its current account surplus (trade surplus) and thus its low foreign direct investment inflows, causing economic growth to slow down. Under a freely floating system, the trade surplus and thus the appreciation pressure, “auto-corrects” itself. Hence, as there is a trade surplus, the Yuan appreciates and as a result, its export competitiveness decreases and eventually, the surplus will reduce.