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The Currency Warfare

It has been over a decade now, where international trade has become very sensitive under the influence of the trade policies, repo rates and currencies. India being one of the favorite destination for many businesses, is still struggling in strengthening its currency and in demolishing its parallel economy. Some economists believe that if the exports will increase in the global market, our economy will grow and our currency will strengthen. All these subjective thoughts require some practical grounds and thought leaders to bond together, to succeed. Fiscal deficits have increased and aging population have their own plans to retire. The question arises that who will take the charge of the complex financial problem our nation is in.

China on the other hand has a different model of trading which is biased toward export driven economy. It is good to be true that China manufactures almost everything and virtually holds the global market. They call it currency manipulation and they are good at it. When a country is selling more goods to the world than it is buying the price of its currency is supposed to go up. People and businesses are buying the currency of that country to get the things from that country, which increases demand for that currency. Increase in demand for something pushes its market price up.

In the trade surplus, country using the stronger currency to buy more stuff from the rest of the world, that country instead has a central authority that uses the surplus of incoming cash to buy the currency of other countries. This is called currency manipulation. It bypasses the natural market supply/demand function of the currency exchanges.

By doing this the country that has been selling more than it is buying is able to keep the demand and therefore the price of other currencies up, meaning goods from those countries still cost more and goods from its own country still cost less. That country’s trade surplus continues upward instead of adjusting. Factories in other countries close, people in other countries lose their jobs and the wealth of nations shifts to the currency manipulating country.

China and several other countries believe it is in huge trade surplus with the world, which brings in cash, jobs, factories and industries at the expense of the rest of the world. So acting as a country, they buy up dollars and other currencies to force up demand and cause those currencies to have a higher, “stronger” price than their own currency. In short we can say the country China is ruling the world by manipulating the currencies and exporting everything that they can produce.

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