Monetary And Economic Policy In Latvia

920 words - 4 pages

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, such action will need to be taken. There is no need for a currency
war; simply implementing monetary policies that will be suitable for our economic situation should
benefit everyone in the long-run.
I. The possibility of a currency war means that the value of the currency increases and
decreases according to market forces. Balance of payments is a brief of international transactions
based on statistics. These transactions are the transferring of ownership of goods that have
economic value measured in monetary terms between various nations. As a result of a possible
currency war, the developed countries could be negatively impacted by continuous defective
demand. Excess supply is stated by the decline in inflation. As currency devalues, or weakens, so
do the exports; they become cheaper internationally, but we are still paying higher prices for
imports. Now there is a need to produce and sell a much greater amount of exports to be able to
earn as much foreign currency in order to benefit from a devaluating currency. A weaker dollar
in the U.S. may benefit by increasing inflation. This is beneficial especially because a dollar that
is weaker has less purchasing power since...

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