Currency wars threaten to undermine global economic recovery

Currency wars are flaring up around the world as countries compete against one one more for a bigger slice of global trade. China has been drawing an increasing amount of criticism from the U.S. and other countries for holding down the value of the yuan so its exploding economy can flood the world with exports. To jump-start flagging economies with exports, an increasing number of nations are choosing to drain value from their currencies. Concerned policymakers call currency wars a risk to global economic recovery and are calling for a spirit of international cooperation.

Everyone loses with a currency war

In eight months, the against the euro is now at a high in competition with the U.S. dollar. Also, the U.S. is pressuring China into raising its yuan which is part of the currency war. 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. The yen became weaker in Japan on purpose. This was done so the U.S. had cheaper Japanese goods. This led to a stronger dollar, which hurts a recovery depending on rising exports and magnified the U.S. currency dispute with China.

China/U.S. currency dispute brings in Europepan>

Congress wants to bring out the heavy artillery. The Associated Press reports the House has approved legislation calling for economic sanctions on China and other countries manipulating their currencies to get an edge on trade. The U.S. wants more jobs to be created. It is going about this by trying to have the dollar fall 40 percent against the yuan in China. 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

In hopes of diffusing the currency wars, the International Monetary Fund is meeting in Washington this weekend. 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 lower trade supplies. This is what Sterman says. Exporting should be done by countries like the U.S. This would help trade deficits to be reduced. President Obama wants to double U.S. exports in five years. He needs China, Japan and every person else to cooperate with him to do that.

Citations

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