We accept

The currency war between China and USA

Recently, the global currency war has become a hot concern to the majority of people and has been making headlines surrounding the world. Once we can see, most of the headlines of the newspaper publishers and periodicals like the Financial Times, Telegraph and The Economist are about the money war. On 27 Sept, the Brazil's financing minister, Guido Mantega was the one who announced that "a global currency battle has damaged out which happens because governments around the world now are contending against the other person to depreciate their exchange rate to be able to improve competitiveness" (Financial Times, 2010). For example, countries like South Korea, Japan and Taiwan are adding effort into bringing down their currencies. However, the key attention was presented with to the two monetary superpowers; China and United States of America. Today's global money war happened 2 yrs following the global financial crisis 2008 and it involved mainly China and USA. Why is the currency war happening? The causes and effects of the currency battle will be mainly centered and discussed below.

There are several factors that require to be looked at to the causes of the currency warfare. First of all, countries like Japan have completed an explicit money intervention or monetary easing in the exchange market and this causes their money, yen, to be weakened and stay low against other major currencies. Other countries like Brazil and South Korea have also done the same. Their currencies gratitude have halted because they are doubling the fees on capital inflows to be able to keep up their beliefs of currencies low to improve their exports. If their currencies are lower, the demand for export will go up since it will be cheaper for other countries to buy their exports. When most developing countries favored the depreciation in their currencies, other currencies like the euro and US dollar will have a tendency to appreciate. This may cause problems for the Western government to control their finances because they are already in a troubled-state.

Secondly, the financial crisis that happened by the end of the entire year of 2008 has caused United Expresses' economy to be in a deep recession and actions have been taken by the US government to crawl from the recession. Currently, america continues to be in its financial recovery state after the crisis however the higher rate of unemployment has worsened its recovery. That is why US centered on China's unwillingness to let their currency, yuan depreciate. The money conflict between China and USA then started out when the government blamed China for not enabling its money appreciate. The US treasury secretary, Tim Geithner said that China has generated "an unhealthy active of competitive non-appreciation in rising economies because China refused to improve its value of yuan" (The Economist, 2010). There have been some experts who insisted that the depreciation of yuan was the major reasons for the US slow-moving economic restoration as yuan is exchanged up to 25% below its true market rate in which the Chinese exporters were given unfair advantages. They even thought that millions of the US job losses are brought on by this factor. The US government also stated that China is manipulating its money by keeping its currency, 'yuan' undervalued against US dollars in order to allow its exports to remain competitive. When China supports the worthiness of yuan down against US dollars, the costs of goods of China in USA will be lower which plays a part in a trade imbalance. This also results within an increase of the united states trade deficit with China because the lower value yuan gives an edge to the Chinese exporters and manufacturers. Some time ago, China released its money peg to buck to prevent a big scale understanding on its money. Hence, yuan is retained at a 0. 5% daily trading strap and will continue to be unchanged (Hurriyet Daily News, 2010). Furthermore, the US Congress bill asked for extra tariffs to be placed on Chinese products but China argued that it's from the World Trade Organizations'(WTO) guidelines to take action.

On the other palm, the currency conflict isn't only induced by the China's manipulation on its currency but also by the united states. China has warned US not to use the dispute over the worthiness of yuan as a "scapegoat" because of its high unemployment and deteriorating expansion prospects (Telegraph, 2010). On the other hand, China responded to the united states that the largest distortion came from their ultra-loose regulations and blamed US Federal government Reserve as well for confirming its starting of the next quantitative easing (QE2). On this quantitative easing, the US will pump a supplementary $600bn into the market and the money source is increased but created by nothing(Financial Times, 2010). The printed money is then used to buy financial resources like authorities bonds. This has obviously proved the signal that US wished to devalue its money. The US National Reserve has taken into account to carry out the expansionary economic and fiscal policies in order to increase their cashflow and liquidity on the market to reduce the long-term rates of interest and hence, contribute to a recovery. In so doing, the united states can devalue their dollars too.

Nevertheless, the depreciation folks dollar put pressure on other countries because it afflicted their exports and budget as their currencies appreciated constantly. This is the reason why many countries are keeping their value of currencies low (Telegraph, 2010). The governor of China's central bank, Zhou Xiao-chuan said that, "the massive liquidity creation would swamp rising economies with destabilising capital inflows". China wished to prevent further destruction that will be induced by the depreciation in US money, so it tended to carry its currencies down. Additionally, Yao Jian, the Chinese language Ministry of Business spokesman has suggested that a big rise in the value of yuan will definitely have a negative effect on Chinese exports. Thus, a stable yuan exchange rate is essential for the local consumption as well as for the stability of the world's market (Telegraph, 2010).

In spite of this, the global currency battle between China and america of America will have huge implications on the global financial systems and everyone one folks. The currency conflict has threatened global economic recovery and it triggers global inflation. Most of us understood that if the QE2 is launched, there will be a large stream of capital to the majority of the expanding countries and the united states money will depreciate. This will likely lead to an excessive amount of money in the united states that received it and puts strain on the consumer prices and in the long run, the value of the belongings will increase. There will be a serious speculation of hot money when the government does not intervene on the market. It is because the large amount of money which is recognized as hot money will generate the new bubbles in stock and areas of appearing and expanding economies (People's Daily, 2010). The hot money can be defined as the money that flows from the The quantitative easing will also drive the rates of interest low to produce more credit. With the depreciation of the buck from the quantitative easing, it required other countries' currencies up and resulted in adding the inflationary pressures on these countries. The Chinese Securities Journal explained the attempts that the united states devote weakening its money will force up inflation as well as the stock and property prices because there are higher global commodity prices and petrol money that movement into the emerging market (Hindustan Times, 2010). The inflation is known to destroy the real wealth and careers not creating them; it also causes problems to the globe.

In addition, the entire world Trade Company (WTO), Firm for Economic Cooperation and Development (OECD) got stated the currency war will increase protectionism. Protectionism is a kind of measure that protects the economy by lowering the imports. You will see a rise in the protectionist barriers like higher tariffs that'll be placed on exports, quotas, embargoes, voluntary exports restraints and different restrictions on the international capital flows. Other countries will switch to purchase exports from countries that incurred low tariffs on their goods as the costs are lower. Therefore, world trade will collapse which contributes to a depression and deflation.

Lastly, the currency war has influenced the relationship between US and China which is transforming the currency warfare into a trade battle. A year ago, the US hoped to truly have a friendly romantic relationship with China however now there appears to be tension due to the currency warfare and US accusing China of exchange rate manipulation. The slowing of the recovery of the economy will be great if both countries became opponents and began to threaten each other.

In final result, there a wide range of media and articles that shown that US was the one who is responsible for the currency war. I personally feel that there will never be any winner for this war since it engaged two powerful countries that are interdependent. It is very apparent to everyone that war has generated a huge impact on our global financial current economic climate and its effects if this turmoil is worsened. Hence, it is essential that the governments should take drastic actions to solve this problem.

More than 7 000 students trust us to do their work
90% of customers place more than 5 orders with us
Special price $5 /page
Check the price
for your assignment