The following article details how the Central Banks in several Asian nations have lowered their interest rates recently to try to continue growth that is expected to slow down in the future. However, the Asian nations are watching the US fed as well. Many of these nations are exporters, and a strong dollar with US economic growth would bode well for their economies. Therefore the Asian nations will try to implement monetary policy to make sure that their currency's value stays at an exchange rate that is favorable for the US to buy goods and services from them.
http://www.reuters.com/article/2012/01/30/us-asia-policy-fed-idUSTRE80T0XK20120130
3 comments:
This is smart by the Asian countries to make sure the exchange rate is favorable for the US to buy goods because America is still the biggest economy in the world. It would be dumb to deter America buying from any country because they would be losing out on possibly a lot of business.
We tend to make too big a deal about exchange rates, real prices have far large effect on trade. For example when we finally got japan to stop undervaluing the yen it made no discernible effect on the balance of trade.
There has been debate on whether the Asian countries are manipulating their currency exchange rate. Because the US dollar has been depreciating against other currencies since the recession, it is difficult for the Asian countries to keep their currency cheap. However, people should notice that the exchange rate between two currencies is not the only, even not the determinant factor in trade balance between the two countries. For example, from 2005, the exchange rate between USD and Chinese Yuan (RMB) has changed from around 1:8 to around 1:6, but US's trade deficit with China has not changed.
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