There's a large degree of tension regarding exchange rates which has been building up for a number of years now. The issue is that since this has been ongoing for such a long period of time, there's fears that this issue will begin to negatively influence world trade policy. Many nations are pointing their fingers at each other but there seems to be many fingers being pointed at China as one of the major culprits.
China certainly bears some responsibility. Partly by design and partly by chance, about a decade ago China found itself consistently accumulating large amounts of foreign reserves by running a trade surplus. Generally this would cause a large degree of inflation to occur however, since China's financial system is so tight, this effect hasn't occured. Although, technically a lot of the blame can be placed on the International Monetary Fund for not controlling this better and limiting the amount of trade surplus China was accumulating.
Although much effort has been put into analyzing this current "currency war", as the author of the article concluded, "The “currency wars” themselves are merely a skirmish. The big problem is that the core of the world’s financial system has become unstable, and reckless risk-taking will once again lead to great collateral damage."
With China playing such an important role in the world financial market, it makes me wonder how soon their political system can remain so 'incompatible' with the western world. We constantly hear about the debate in the US between our human rights standards and our trade policy with China. But, even beyond that... can China still serve as a foundation for the world financial market without making substantial political changes? And, can they remain stable economically while undergoing democratization? It seems like their government has recognized this, in my opinion... and they're trying to control this change from the 'top-down'.
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