10/04/2004

high oil prices threaten global economy

This article entitled "High Oil Prices Threaten Global Economy" touches on four subjects: China's fixed rate currency, high oil prices, debt relief to Iraq, and debt relief to the world's poorest nations.

China's fixed rate currency is one of particular interest do to it's economic dilemna.

After World War 2 most nations had a fixed rate on their currency. The rate usually followed some other benchmark (the US dollar). These fixed rates for the most part don't exist today except for a few exceptions, China being one of them. China has maintained a fixed rate on the yuan, ironically enough to keep it selling at a discount. The way China keeps their currency fixed is by buying US surplus dollars with their yuan (supply & demand). When China runs out of US dollars it has to buy more with a discounted currency, devaluing the currency further and making a form of loan to the US government.

The reason China wants to keep the yuan cheap is to keep recieving a trade surplus that helps the Chinese economony. At the same time, an estimated 4 million jobs have been lost do to the lopsided exchange rate. The Us can purchase lots from the chinese with a dollar; however, the chinese can't buy much from the US do to the undervalued juan.

http://www.msnbc.msn.com/id/6153860/

3 comments:

John West said...

There are lots of games played everyday in the political arena of world finance. What China is doing is going to only hurt them in the long run. It is better to have sustainable growth due to their own economic resources, than depending on the games that they continue to play. The amount of jobs being lost would set off some sort of an alarm that something bad is happening in most countries, but that number (4,000,000) represents only .003% of China's population.

Maudi said...

Business is something that must be taught. The oil prices are high because of the games that are being played in the global market. The fact that other countries are winning at the game does not boad well for the U.S. We need to become self sustaining and stop depending so much on trading.

Dr. Tufte said...

Where's the ManEc?