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The Currency War

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  1. The Currency War Global Financial Strategies Katharina Kolb, Elise Guzzo

  2. Agenda • Introduction • China´s Role • What is the currency war • The Currency War as Global Issue • How to stop this war

  3. Introductionto Currency War • Definition • competitive devaluation • a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their home currency, to help their domestic industry • Usually, government seek for strong currency • better power purchase  buy a cheaper foreign product • high exchange rates lead to low inflation rate. • Methods to devaluate a currency: • Issue money • Buy foreign currencies (through bonds) • Negative rumors

  4. China´sRole • Chinese Yuan is listed by the government • defining the currency value according to China´s political and economical objectives • Under evaluation of the Yuan (30-40%) • Why do they do that? • to enhance exports • How do they do that? • printing money • buying foreign currency bonds

  5. Whatis the CurrencyWar? • At the essence: the United State constantly over issuing US dollars Interest rate M M’ i i’ Demand Money Supply

  6. Whatisthe Currency War? M Interest rate i’ i D’ D Money Supply

  7. Whatis the CurrencyWar? Brazilian currency – Real = BRL US currency – US Dollar = USD t0 : S(USD/BRL)= 0.54 S(BRL/USD)=1.85 t1 : S(USD/BRL)= 0.60 t2 : S(USD/BRL)= 0.62 S(BRL/USD)=1.61

  8. The Currency War as Global Issue Threatening to enhance barriers against Chinas exports New trade barriers ??? Trade war & Diplomatic war Distorting global demand by printing money Instability on financial markets Distrust enhancement among countries Setting up policies and taxes

  9. How to stop the Currency War • NGOs as mediator • Stop printing money • Cut imbalances between countries • Build international pact • floating currencies • limit of 5%

  10. Thank you for your attention! Any question?