Currency War

The article “How to stop a currency war” describes the situation of a world exchange rate that has been interfered with by influential countries in the world market. Recently, the world economy has been in the condition of being prepared to maintain war. Many countries blame each other for distorting global demand and intervening with currency. The author indicates that behind all of these confusions, there are three factors that cause this disturbance. The very first reason is that China, as one of the largest of world exporters, is unwilling to allow the yuan to rise more quickly. Americans had to pass a law that allows firms to seek tariff protection against China’s undervalued currency. In terms of economics, this protective tariff will help to prevent foreign competition like China from exporting its commodities to the United States. The second reason is that while the dollar has fallen and the euro has soared, the quantitative easing of China creates a gross distortion in the world economy in search of higher yields. The third factor that causes this confusing situation in the world economy is how the developing countries such as Brazil and Thailand came up with imposing taxes on foreign capital inflows. The author mentions that today’s war footing could change to a real fight. The conditions driving the difference of economic policies are likely to last for years. Fiscal austerity will rise in many countries and the pressure on politicians to treat China as a fall guy will increase. Although the foreign capital might increase, all of those developing countries will be forced to pick between losing competitiveness and allowing their economies to overheat. The writer suggests that global demand needs rebalancing, away from indebted rich economies but toward more spending in the emerging countries, which are nations with social or business activity in process of rapid growth and industrialization. Although global demand might be rebalanced, Chinese yuan will...