A Currency War Analysis of USA Dollar

8/3/2019 A Currency War Analysis of USA Dollar

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A Currency War Analysis of USA Dollar, Euro, Japanese Yen and Chinese

Yuan/Renminbi

In any countries across the globe, the fiscal and monetary policies seek at achieving

relative macroeconomic stability. The monetary policy framework in various countries

around the globe is more than the objective of monetary policy is price and exchange

rate stability. The monetary strategy in the inflation management is based on the

view that inflation is essentially a monetary phenomenon. The economies target the

money supply and its growth can be the main objective of the price stability. In order

to promote the appropriate methods in monetary policy, the supply growth is firstly

considered in targeting the inflation. With this, the USA Dollar, Euro, Japanese Yen

and Chinese Yuan/Renminbi are battling each other to increase their stability in the

global market. In accordance to the currency wars, performances of widely used

currencies are assessed based on their exchange rate value. According to Irwin

(2002), the function of the exchange rate is to equate supply and demand. Exchange

rate is much more than an ordinary price it is between the price structure of one

country and those of all others, and thus between the national economy and the

world economy. An inappropriate exchange rate affects the relation of domestic to

foreign prices of a wide range of goods and services and to some extent the relation

of one group of domestic prices to others. A substantially inappropriate exchange

rate for a prolonged period would seriously disturb the economy.

For Salvatore (1993), exchange rates as the country's international transactions are

an integral part of its economy because it has a significant effect as they affect as

they affect output and employment, prices and real income, and money and capital

markets. From there, the primary function of USA Dollar, Euro, Japanese Yen and


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Chinese Yuan/Renminbi is to help bring about such a pattern of international trade

and capital flows. That function, it should be emphasized, is the same whether a

country has a fixed par value or a freely fluctuating exchange rate for its currency.

While Dreyer (2004) states that exchange rate is considered one of the most

significant international economic developments. According to him, decades ago

there had been breakdown of the system of adjustably pegged exchange rates on

which the post-war international monetary system had been based and the

widespread adoption of more flexible exchange rates. And by the fall by of 1975

there is an experience accumulated sufficient with the new system of flexible

exchange rates to attempt a major effort at evaluation of the initial performance of

floating rates.

The US dollar has four main objectives:

Remain one of the top currencies in the world. Being one of the top currencies enables

the dollar and the US to command the respect and confidence of other nations.

Thus, the US is able to expand its operations through the continued strengthening of

the US dollar.

For the US to gain more profit than other powerhouse nations. The US dollar currency

that is being used in the trading process used all over the world is able to meet high

quality standards. As a result, the US is able to earn more profit as against other

industrialized nations (El-Agraa, 2004).

Build the best currency portfolio, with the US dollar as the international currency of

flagship; and


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Maintaining its independence. Being an independent currency allows the US dollar to

continue its tradition of excellence in both its ability to purchase products and

services by setting new trends and standards.

In order to achieve these objectives, the US implements a strategy of selling a

combination of local brands and international brands, but maintaining the US dollar

as the flagship currency. The US also aims for broader positions as well as either the

top or secondary positions in any market. Any of these positions would be enough

for the US to deliver a high level in terms of production, marketing and distribution

using the US dollar (Yarbrough & Yarbrough, 2006). Moreover, these positions

create a platform from which the US can sell or trade their premium and other

specialty products. With a continued focus on the structures of the costs, the above

mentioned objectives should undoubtedly be reached.

It is said that the currency wars between USA Dollar, Euro, Japanese Yen and

Chinese Yuan/Renminbi has been considered as a major contributing factor that

enhances the global market. To be able to prevent an economic chaos during

currency wars, different policymakers from the monetary and fiscal sectors have

been able to do their very best to solve the issue. Accordingly, the initial responses

for the currency wars to avoid any financial crisis should be made by the central

banks which increased the availability and accessibility of the short-term financial

funding with their domestic financial system and eased monetary policy with the

intention and aims for limiting the fallout from the financial system in line with the real

economy. Aside from this, fiscal policies have also been employed to shore up the

financial fields through the measurement which aims on bolstering the balance

sheets of the weaker sectors.


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A Currency War Analysis of USA Dollar