Currently there is high competition among the larger economies to have a weaker currency during these hard times. A weaker currency allows for cheaper goods in other countries. In a way having a weaker monetary value is an informal tariff, which acts as security blanket. This allows for more taxable goods and acts as an advantage for the importer. Furthermore, it also works in the favor of exporters, guaranteeing them more business.Take China as an example, China purposefully manipulates their currency through printing Yuan, which causes inflation. This is specific to countries such as China, Taiwan and Korea whose economies rely heavily on exporting. Countries who rely heavily on imports include the US, UK, Germany and others.
At the moment the US is trying to sway China into allowing their currency to rise. From what is seems China’s lower currency isn’t helping the unemployment rate in the US. The result of high exports could mean few jobs for Americans.
China's manipulation of their currency does hurt the labor force in the United States because it gives companies the desire to produce in China over the U.S. due to such a low cost of production over there. On the other hand, cheap costs in production allows for cheap costs for consumption. Therefore, consumers in the U.S. are paying lower prices for goods but it is hard to justify these manipulative actions for this reason alone. Lower prices is a beneficial aspect, but many sources of income will disappear for workers in the U.S. if this continues and then consumers would not have any money to buy even the cheap goods.
ReplyDeleteThis makes a lot of sense because if the products are lower in another country, it will appeal more people from other country's to buy the products. It also appeals companies to produce in China or other low currency country's because lower wages and lower cost of production. However, lower currencies may mean that the economy isn't as strong as other countries. This may be the only downside of the currency being low.
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