The United States has complained about undervalued currency. Is it time to take the right steps to fix this distortion? How does it affect the US economy? Many countries produce products that are sold to the American market. When a country de-values its currency, the goods produced by said country become cheaper and there is more competition. If the Central Bank of a certain nation decides to buy a lot of American dollars every day, the value of the American dollar will increase compared to the National Currency. China has been able to export a lot because of currency manipulation.
Set by the market or by the Central Bank?
Markets determine the value of many goods and services, and the national currency is no exception. Many governments like to buy or sell American dollars in local markets to influence the value of their own national currency. Governments have the right to react when there is a political crisis or a financial problem that makes the national currency lose its value, thus, the governments have to intervene to avoid further de-valuation. In this case, it's ethical because governments protect their countries from chaos and poverty.
When does unethical behavior begin?
The problem begins when governments de-value their national currency in order to export more.
They grow at the cost of other nations that will be flooded with their cheap products. A monetary policy that artificially de-values the local currency is as unethical as dumping.
Global institutions have to supervise this
This is when global organizations create rules to avoid artificially low currency, and nations that don't want to obey these rules must face the economic and legal consequences.
Also, too many artificial de-valuations can produce a domino effect, thus, in the long term, it can produce economic problems in many nations. De-valuations destroy the faith that people have in the economy of a nation.
Free trade has to be fair trade
Many countries want free trade because it creates jobs, promotes economic growth, increases revenue, and more.
Free trade has been key to the development of many countries, and the US has been a huge market for companies based in China, Japan, South Korea, Mexico, and others. Nations must have a monetary policy grounded in reality, not based on under-valued currency. This way, America will be able to sell a lot of products, and all parties will benefit.
