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The Impending Currency Battle of Central Banks

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The Impending Currency Battle of Central Banks

There is a battle that Central banks will go through which involves currencies around the world. 

This war could have a positive or negative impact on a country’s economy depending on the country and the perspective.

Not long ago Central banks responded accordingly to the fluctuations of the world banking system. 

There was affordable credit and the lower value of the USD.

The lowering of the USD helped China’s assets, and marketing emanates. 

This decrease in the USD created a thirst for global trade from 2009-2014.

Towards the middle of 2014, the central banks have experienced the opposite of growing trade. 

Instead, the increase in the value of a dollar created an adverse effect on China and decreased China’s flow of capital, commodities, and exports.

China used to borrow a devalued USD and boost their investments for top giving markets.

With the rising of the USD dollar value, it lessened China’s competitive edge.

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This struggle in the global markets continues through the year 201 because of a stronger dollar. 

Groups have tried to reduce the value of a dollar like G20 nations such as Argentina, France, Turkey, India, Brazil, and China to name a few.

The U.S. dollar has a gain of 25%, and the value of the dollar went from 80-100 according to the USD Index.

The problem with foreign exchange is that while a stronger dollar may benefit the consumer owner of the dollar, it can mean at the same time extreme losses for other countries experiencing negative impact when the monetary value rises.

Contrary to the currency value increases, countries like Japan may benefit from a stronger dollar because it weakens the yen.

The USD’ role is both domestic and international.  Depending on which country you are in there will be a battle of central banks. 

The rise of the USD could mean good things as well as have an adverse impact on the economy.

Some banks will try to lower their interest rates in hopes of giving a rise to exports. 

On the opposite end, if the banks did reduce their interest rates it may result in capital flights.

Capital flights may lead to the devaluing of currency and the reduction of purchasing power and riches of those who own the currency.  Consumers may appeal to placing their cash into money that results in a stronger dollar.

It is like a circle. 

China can to try to devalue their currency.  If China decides not to do this, their currency rises causing others to devalue their currency and lessen exports in the market.

It’s almost like a Catch 22. 

If you do something about the value of the dollar, it produces some negative and positive effects. If you don’t do something it also produces negative and positive effects.

Sources also speculate that if the Federal Banks cannot raise interest rates after growth, they will no longer be credible.

Price increases will speed capital flow into the USD, and the value of a dollar will go higher.  The higher the value of the dollar, the more China will suffer and so will US profits overseas.

What does a top dollar mean for the USA?

  • A high dollar could make products made by foreign manufacturers more appealing to the American consumer.
  • Products made by foreign countries could threaten our U.S. companies such General Motors or Ford.
  • It would be more competitive for our U.s businesses to compete with the Euro.
  • Conversely, a stronger dollar could affect our sales international trade of exports.  This battle is both good and bad and is seems to stem from the value of a dollar.

The central banks deal with these fluctuating rates in world trade.  The result can lead banks and financial workers at a crossroads of what to do.

The strength of the dollar also shows signs that the United States economy is improving.

It is even more beneficial for Americans to travel around the world since the power of the dollar. 

The price of imported goods is lower and can entice Americans to purchase internationally.

If any central bank raises the rate, it will attract assets in search of a rise in return and the currency to appreciate.

Central banks everywhere are at a war regardless of what policy enforces by the Federal Reserve.  There will be gain and losses in this war.

Do we advocate a high dollar and raise domestic consumer’s power to purchase or do we support a devaluing of the dollar to open up to countries who depend on our devaluing of the dollar? 

Whatever country you live in, this currency battle may be right or wrong for you and the central banks.

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