Argumentative Essay On Currency War
China did not want to repeat the mistakes of Japan in the 1980s. At the time, U.S. dollar was considered too strong (while the yen was too weak) so it decreases the competitiveness of U.S. products. To overcome this, the Japanese Government and the Government of the United States, France, Germany, and Britain signed an agreement known as the Plaza Accord on September 22, 1985.
One of the contents of this agreement is the government of the five nations agreed to intervene on the market with the involvement of central banks of each country. The goal is to devaluate the U.S. dollar exchange rate, particularly against the Japanese yen and German deutsche mark.
The main reason for the weakening of U.S. dollar is to reduce the U.S. current account deficit which has reached 3.5 percent of GDP, in addition to helping the U.S. economy recover from the recession that began in early 1980.
Interventions that involved about 10 billion U.S. dollars eventually led to U.S. dollar exchange rate against the yen to weaken. The weakening quite significant, 51 per cent within two years after the Plaza Accord agreement implemented. U.S. balance account deficit declining, even in the U.S. back in March 1991 the balance account got …show more content…
dollar, the yuan has strengthened only by 1.2 percent over last year. The increase was much smaller than the increase experienced by the rupiah against the U.S. dollar over the last year, reaching 8.5 percent.
In other words, the trade between two countries, Indonesia has benefited by 1.2 percent with the strengthening of the yuan exchange rate. However, China benefited by 8.5 percent with the strengthening of the rupiah during the last year.
Thus, it is not surprising that Indonesian business people began to complain, their goods become less competitive compared to goods from China. Moreover, Indonesian lending rates are still relatively higher than the lending rate in China.
Currently, the base lending rate of Indonesia is around 12.2 percent. Commercial loan rates are usually higher than that. Meanwhile, China's basic lending rate is around 5.31 percent. This means the cost of production of goods in China is relatively cheaper than the cost of production of goods in Indonesia.
How to Solve and What Can be Learned from this Issue?
There are a number of factors that are expected to help to resolve the