You may not realise that we are in the middle of a global war. Right now, Japan, China and the US are facing off against one another over currency issues. All three nations are desperately trying to keep their currencies low at the expense of each other in order to maximize their own exports. China keeps its currency artificially low so that it is universally attractive as a stable source of manufactured goods. No one can compete with their pricing so manufacturing the world over has moved to China. US authorities have complained for years. Congress keeps threatening with trade sanctions, to no avail. China refuses to unpeg its currency set at an attractively low fixed rate to the US dollar. Japan too is suffering. It is one of the reasons why China has recently overtaken Japan as the world’s number 2 output nation. Every visitor to China comes back in awe of its economic achievements.
Lately Japan has started to fight back by buying USD and thereby trying to halt the inexorable rise of the yen. If the rise of the yen is left unchecked Japan will just watch its manufacturing market share sail across the short distance to China.
The US can’t be happy with any of this. It was quite content to see its currency fall (except against China ) and as a result , for a while exports started to go up, but recently this trend has reversed with all its trading partners employing ” beggar thy neighbour “ policies, i.e. each country outdoing its neighbour in reducing their currency trying to gain a trading advantage as happened in the Great Depression. Back then the result was ever declining world trade and ever increasing world unemployment. A similar development now must be avoided at all cost.
