War of Currency, Who Is the Winner?

In: Social Issues

Submitted By cs5v5v
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Subject: War of currency, who is the winner?

During the last week, U.S. dollar kept its way of weakening against major currencies of the world. The exchange rate of Euro has achieved its 8 months’ record high against US dollar, the Australia dollar has reached its 27 years’ historical high and the Japanese yen has got its 15 years’ historical high ever since the “Plaza Accord” in the late 1980s. What’s more, only in September, the Chinese Yuan has been appreciating by 2% against US dollar, and this number is still growing. It is expected that the policy of weakening dollar may trigger a currency war among the major economic entities all around the world. Under this circumstance, lots of central banks have taken measures to prevent an over-appreciation of its own currency. Japan has lowered its inter-bank overnight call rate to nearly zero. And the government also approved a stimulus package of 5.05 trillion yen. Emerging market and export oriented countries like Brazil raised the taxes on fixed income securities from 2% to 4%. South Korea is now buying U.S. dollars to prevent its won going up too quickly.

As far as we are concerned, there are mainly two reasons for the current war of currency all over the world. The primary reason is that the United States hasn’t demonstrated a very strong potential in its growth. The economic performance is way below its expectation. To stimulate the economy, Federal Reserve has released several monetary plans which are referred as “quantitative easing”. Basically, the Fed is pouring money into industries and thus lowering interest rate and exchange rate. According to statistics, federal fiscal budget deficit is estimated to be higher than $1.3 trillion in 2010. The huge federal debt had put lots of stress on the federal government. The government is probably planning to lower its treasury deficit by making U.S. dollar…...

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