Is The USA Manipulating Its Own Currency Before An Important IMF Meeting?

 

US Dollar Chinese Yuan

 

Any exporting nation should be happy with a weak currency. For starters, it should increase the demand for manufactured goods that are in the country and on top of that it should increase the domestic demand for a country’s industrial output as it will become more interesting than importing a lot of the goods.

A simple example might be helpful here. When the Dollar is cheap and the Euro expensive, would airline carriers place an order with Boeing or Airbus? The answer is pretty straightforward, as everyone with a common sense about how economics work would say that Boeing would get the order due to a cheap dollar, reducing the expense in the third currency compared to buying an Airbus in Euro.

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So, the Euro went down the drain lately and has lost approximately 25% of its value compared to the US Dollar in less than a year time. That’s obviously excellent for the exporting countries in the Eurozone, but then the question arises why on earth the US government (or the Fed, for that matter) allows the US Dollar to appreciate this fast? It would only need a few comments from Fed chair Yellen saying the Fed will not raise its interest rate this year to make that happen.

So, why didn’t she do so? Why does the USA seem to be happy with its expensive currency which is slowly suffocating the export-focused sectors of its domestic industry? There might be another factor at play here, a factor everybody has chosen to ignore.

The IMF system is based on Special Drawing Rights, or ‘SDR’s’ in short which is considered to be an IMF reserve asset. The IMF itself defines an SDR as a ‘potential claim on the freely usable currency reserves of member countries’. The SDR’s were originally based on the value of gold, but this was later converted to a basket of the Euro, Japanese Yen, the US Dollar and the British Pound which were considered to be the main reserve currencies of the world.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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