Monetary and Economic Policy in Latvia

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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.
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