Donald Trump and the Art of Currency Manipulation

Donald Trump and the Art of Currency Manipulation

Farok J. Contractor

economy, Americas

Is Argentina intentionally weakening the peso?

President Donald Trump slapped new tariffs on Brazil and Argentina after accusing them of manipulating their currencies to boost exports.

It wasn’t the first time Trump has labeled another country a “currency manipulator” for supposedly meddling to keep its own currency weak or undervalued. China received that epithet from the president long before it felt the pain of his trade war.

But the truth is more complicated than Trump makes it out to be.

Everyone does it

The first thing to understand is that government efforts to influence their exchange rates – which is often dubbed currency manipulation – is extremely common, as I’ve seen firsthand in my work as an international business professor.

All but 31 of the International Monetary Fund’s 189 members meddle, in a mild or total fashion, to influence or fix their exchange rates. Only a few major currencies, such as the dollar or euro, are allowed a “free float” based on market forces of supply and demand with minimal or no government intervention.

Other governments have a variety of ways to manage their currencies. Some peg their currencies to a fixed rate, as long as they can afford to keep it there. Others tie their currencies to a major but stable currency like the euro or a basket of different ones. For example, the Lebanese pound is tied to the dollar at a fixed rate of 1,507.5 to 1.

About 16% of IMF members use a “managed float,” in which they allow market forces to play a role but with the government buying or selling their own currency as needed to bias the exchange rate upward or downward. Argentina and Brazil both adhere to a managed float system.

Why weaken a currency

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