Currency Manipulation – A Jamaican Perspective
The Jamaican Dollar is being held ransom and you would not believe who the kidnappers are.
Under normal conditions, the value of one’s currency is based solely upon one’s countries production.
If a country produces to the point where it has a trade surplus (relatively speaking) the price of its currency goes up. This is because people (globally) are buying its money to buy its products. That’s like buying US dollars to buy US Products. The converse is true, trade deficits results in the value of a countries currency going down.
Currency manipulation occurs when the GOVERNMENT of a country deliberately buys or sells currency on a massive scale in order to reduce or increase the value of another countries currency.
So lets say under normal conditions the USA, due to a trade surplus had a high value currency. Then the Chinese or specifically the Chinese Government bought US dollars on a scale 500% more than under normal conditions, the value of US dollars goes even further up.
How can this happen. Easily, China uses taxes, loans and in some cases PRINTS its own money to buy US dollars.
Why would they do this. Simply, demand and supply, Chinese dollars (yuan) become cheap and any thing sold by China (relatively) on the global markets becomes cheap.
How does this affect other countries? If their dollar values are valuated normally, the value of their dollars go down IF the USA is the yardstick for dollar valuation. Devaluation will occur in other countries if they are producing at the same level or even a little more than usual.
This my friends is what happens when the Chinese government buys US dollars. The value of the US dollar goes up, the price of Chinese products go down and the value of Jamaican dollars also go down.
But wait, hold on, isn’t global currency valuation part of the portfolio of the IMF, shouldn’t they be doing something about this. Doesn’t this affect the cost of loans and repayment of loans. Well it goes a little something like this. The IMF CANNOT compel a country to do anything only offer advice.
So the next time we are told about currency devaluation and WE are seen as the reason, take it with a grain of salt. Think about the impact of remittances and what happens when we send money to Jamaica. We actually are using US dollars and British Pounds to buy JA dollars.
We may not be producing in the traditional sense (via country exports) but we are in fact “producing”. So under normal conditions what should happen?
Sources:
http://ourfuture.org/20140622/what-is-currency-manipulation
http://fas.org/sgp/crs/misc/RS22658.pdf
http://www.washingtonpost.com/…/five-facts-you-need-to-kno…/
http://www.slate.com/…/china_currency_manipulation_how_does…
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what your describing blogger is normal practice on the world money markets…Jamaica is tied to the US dollar and produces very little of its own…using the US $ as a benchmark…America has tried unsuccessfully to get china to re-value its currency..it wont..it suits china not to for the reasons you gave..china gets cheap exports…if the US cannot make them re-value then Jamaica certainly carnt….for many years the Jamaican $ was kept artificially HIGH to facilitate cheap IMPORTS for the wealthy business friends of politicians to the detriment of exports…it gave a false sense of wellbeing to the populous and depleted… Read more »
I would take issue with two things, normal practice and Jamaica produces very little. Currency manipulation is done by several countries, however it is not an accepted practice. There have been moves even in the USA to stop this “normal practice”. You see this normal practice has been linked to the loss of millions of US manufacturing jobs. Advocates for those who have lost jobs do not see this as normal, they see it as it is, subsidization. Second, this idea that Jamaica produces very little is a myth. Jamaicans produce by way of services and yes “remittances”. This concept… Read more »
this man-made monetary system is not a good system , it will only cause problems across the world.