Currency War Between China and Usa and Its Global Impacts on Economy
Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive too, so domestic industry, and thus employment, receives a boost in demand both at home and abroad. However, the price increase in imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming …show more content…
On the contrary, depreciation makes imports more expensive and discourages purchases of imported goods stimulating demand for domestically manufactured goods.
Globally, governments intentionally influence the value of their currency utilising the powerful tool of the base interest rates, which are usually set by the country's central bank and this tool is often used to intentionally depreciate the currency rates to encourage exports. Factors that can cause a currency to depreciate are:
Supply and Demand
• Just as with goods and services, the principles of supply and demand apply to the appreciation and depreciation of currency values. If a country injects new currency into its economy, it increases the money supply. When there is more money circulating in an economy, there is less demand. This depreciates the value of the currency. On the other hand, when there is a high domestic or foreign demand for a country's currency, the currency appreciates in value.
• Inflation occurs when the general prices of goods and services in a country increase. Inflation causes the value of the cedi to depreciate, reducing purchasing power. If there is rampant inflation, then a currency will