More Related Content
Similar to Effects of Currency Manipulation
Similar to Effects of Currency Manipulation (20)
Effects of Currency Manipulation
- 1. Chelsea Williams
P100116210
Currency Manipulation Assignment
RFPD 4070 : ‘Global Issues in Textiles’
Spring 2016
Professor Lisa Williams
January 30th
, 2016
Currency Manipulation Assignment
INTRODUCTION
After conducting research, it is very clear how incredibly important the issue of currency
manipulation is in the textile and apparel industty and how it is affecting, not only retailers and
businesses around the world, but also the American market right here at home.
QUESTIONS
1.) What is Currency Manipulation?
In layman’s terms, Currency Manipulation is when a ‘country devalues its own currency by
buying foreign currency, manipulating the exchange rate of its own currency. For example,
China orders banks to print more Yuan and lessening its value; changing it’s value from 4.00 to
7.00 against $1.00 USD.
2.) What is the benefit for the country that devalues its currency?
The way that countries benefit by weakening the value of their currency is because ‘a weak
currency cheapens the price of a country's exports, making them more attractive to international
buyers by undercutting competitors’. So if China devalues the Yuan, it will cost countries less to
export goods from other countries, so US market will buy more.
3.) How does Currency Manipulation affect other countries?
Although not technically illegal, the reason that currency manipulation is seen as wrong and
unethical is primarily because of how it affects the other countries that buy their exports. By
devaluing currency, which lowers overall export costs, it attracts other countries to buy those
exports from the lower costing country. For example, if China devalues the Yuan, US retailers
are going to be more inclined to purchase textiles and goods exported from China instead of
purchasing good manufactured in their own country (or another country), meaning that demand
for US production goes down causing them to make less money and downsize their teams (in
other words: people lose their jobs – unemployment rate rises). On the flipside, the consumers
of the country that is doing the manipulating suffers as well because the value of other countries
currency is stronger than their own, meaning foreign products become really expensive, and so
they stop buying them.
4.) How should other countries respond to currency manipulation?
- 2. Currency Manipulation is a hot topic in politics. Many people look to political leaders for answers
on how to reverse the effects of currency manipulation, however there really aren’t very many
legislations in place, that are strong and effective, to forbid a country from manipulating their
currency. Unfortunately, in this case, a country has the right to do what they believe is
necessary to strengthen their economy – even if the means of advancement are considered
slimy and unethical. The only thing other countries can do to to reverse the damage is to
change their own economic courses of action. One way that the United States is taking into
considering in attempts to repair damages is by taking advantage of ‘The Omnibus Trade and
Competitiveness Act of 1988’, a slow process that requires the executive branch investigate and
recognize countries that are manipulating their currency and make a declaration, which
hopefully will then encourage countervailing duties if the manipulation continues. The only issue
is that it is not being properly enforced. For example, although Chinese currency manipulation is
recognized by the Obama administration, they refuse to declare China to be a ‘currency
manipulation’, which prevents any sort of progress. A second, faster, option that the United
States could implement to stop currency manipulation immediately is through the use of
presidential emergency powers. This is done through presidential enforcement of the
Emergency Economic Powers Act, making it illegal for manipulators to purchase U.S. Treasury
bills and other government assets; restricting or even banning the manipulating country from
purchasing U.S. Treasury bills and other U.S. assets if the country does not seriously revalue
and cease all currency intervention in the near future. If the manipulating country is unable to
purchase U.S. assets, it will no longer be able to manipulate its currency, which will increase the
currency and the demand for countries goods and assets.
5.) What countries have been accused of manipulating their currency currently and in the past?
The country that Americans associated most often with currency manipulation today is, of
course: China. There are many valid reasons for people to suspect that China manipulates their
currency. For example, since China has one of the most powerful economies in the world, the
value of their currency should reflect that, and it doesn’t. Another indication is that the Yuan is
consistently dropping in value, more than can be explained. Many things simply do not add up
with China’s economic growth and their currency value. Although China is the country that
receives the most media attention regarding currency manipulations, statistics from the
Washington Post suggest that nearly a dozen other countries are bigger threats to the US
economy than China. Those countries include: that have been accused of currency
manipulation include: Libya, Algeria, Saudi Arabia, Singapore, Taiwan, Thailand, Malaysia, and
many more. Japan is also another country that is often associated with currency manipulation.
CONCLUSION
In conclusion, the issue of currency manipulation is a major problem in the U.S., and global
markets, and causes a significant rise in unemployment. If plans of action are not put into place
and enforced, currency manipulating countries will continue to unethically strengthen their