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Currency Manipulation | Article

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Added on  2019-10-01

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Topic: Currency ManipulationCurrency is one of the important media of exchange when two countries trade or establish business relations among one another. The value of a country's currency is thus an important factor which determines the amount of foreign trade. This provides an incentive for currency manipulationswhich can help improve the exports and thus the balance of trade. The aspect of currency manipulation is not legitimate but can be accomplished in some strategic ways which are within the legal norms.Currency manipulation is also known as currency interventions which are accomplished through a monetary or fiscal policy of a country. In such an intervention, the government sells or buys foreign currency in exchange for the currency of their own country. Such activity influences the exchange rate among the two currencies and leads to the desired situation.Some of the experts indicate that currency manipulation is foreign exchange market interventions, which is important to boost the foreign operations of an economy while others think that such interventions disturb the normal trade operations. There are various economic units in a country which is interested in currency manipulations and wants to set a target which helps boost their business activities. The government and the policymakers in a country also has a set of objectives which are fulfilled through currency manipulations. Some of these objectives are as follows:Regulating Inflations- One of the reasons why countries and the government resort to currency manipulations are to regulate the rate of inflation and price rise. The exchange rate of the home country about a foreign country leads to changes in the inflation rate for anopen economy. Improvement in the exports and foreign trade relations- One of the reasons for which the policymakers may choose to intervene or conduct currency manipulations is to improve the level of exports or foreign trade. Such interventions help to establish the rate in a manner that the home country products are cheaper in the foreign market. This helps to build demand in the foreign market and improve sales. When the home currency is too strong, it makes the goods costly in a foreign country. Thus it is necessary to intervene and correct thesituation.Economic growth- Another major reason for which the countries might intervene or conductcurrency manipulations is for boosting the economic conditions of a country. When the rate of exchange is set at a rate which attracts foreign investments, it helps in the economic development of the country. Thus the developing and the under-developed countries might find it attractive to go for currency manipulations and improve the growth rate for a certain period.Strategic development of important sectors of an economy- The government and the policymakers of a country may be interested in the currency manipulations, for improving the strategic sectors of an economy. There are various sectors which cannot be growth indigenously and are dependent on foreign trade. Through the estimated rate of foreign exchange, these sectors may get a direct boost. Response to foreign depreciation- Sometimes, the government of a country may be interested in currency manipulation as a response to foreign currency depreciation or other changes in foreign currency. The central bank may find that the home currency has become out of sync with the economic growth rate of the country and maybe having adverse effects.Improve trade deficit- Another reason why the countries use currency devaluation is to improve their positions of trade deficit. As a result of currency devaluation, the imports of a
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