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2010

[THE DYNAMICS OF CURRENCY POLICIES]


The following article presents the view posted by the U.S treasury secretary on the notion of currency valuation and why their evolving dynamics is a threat to modern economy.

The Fiasco of Currency Policies:


October 6, 2010 witnessed a meeting of the major countries of the world on a platform to discuss the role currency valuations in the growth of the major economies of the world. U.S treasury secretary Timothy F.Geithner claimed that if the major economies of the world continue to keep their currencies undervalue then it will trigger inflation and credit bubbles which may prove detrimental for the world economy. He claimed that most of the countries are compelled to rely on the market forces for the valuation of their currencies which hikes up their expected value. Brazils Finance minister Guido Mantega also projected a currency war ahead. He laid a major emphasis on the fixing of exchange rate based on market forces of demand and supply rather than some countries trying to keep their exchange rate undervalued. Keeping the exchange rate undervalue would make the countries products cheaper in the world market and hence would increase its exports. IMFs chief economist, Olivier Blanchard presented the view that major economies of the world are trying to keep large current account surplus balances and are using the capital inflows in the economy to accumulate a reserve cushion. The capital inflows instead should be used for the exchange rate appreciation. The focus of the meeting was Chinas Yuan which Geithner pointed out that it has placed a cap of 2% from the time it was unpegged from dollar in June. This was greatly criticized as China was shielding itself from the U.S and European imports. The irony of the Yuan valuation is that a rapid increase in Yuan would lead to higher exchange rate for U.S and Europe. Hence a an unstable stance in Yuan would lead to shock waves in the world economy. Conclusively the gist of the meeting was to make the major countries aware of the fact that their underachievement on growth could prove detrimental to the world economy in terms of hiking exchange rate valuation. Hence the countries should try to complement each other and cohesively to prevent such a situation from occurring.