Are savings (from exports) put towards sovereign wealth funds an attempt to maintain currency?
Tuesday, January 26th, 2010 at
3:12 pm
Mary Jane asked:
Im referring to China’s trade surplus savings and the middle east’s revenue from oil exports. Do they put this money into these funds to maintain currency thereby ensuring stable export rates?
Im referring to China’s trade surplus savings and the middle east’s revenue from oil exports. Do they put this money into these funds to maintain currency thereby ensuring stable export rates?
Tagged with: China Trade • Money Currency • Oil Exports
Filed under: Forex
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China holds their currency artificially low to ensure their export “dominance.”
Countries should never save money. It makes no sense in macro economics because they borrow most of the money from themselves. Savings on a personal level is good, on a governmental level is bad. As an individual one must obtain more money through skill or trade. As a country the government obtains more money by printing more, or borrowing more from the citizens of stated country.
The US national debt is almost entirely owed to the citizens of the US. In essence it is money we borrow from ourselves. It would be similar to setting up a trust fund for your kid. Your kid borrows from the trust fund. The money they owe is to themselves, so, if they never pay it back it doesn’t really matter because it was their money to begin with.
A lower dollar value is good for exports bad for imports. The US likes to import stuff, and we do little exporting (other than tourism, people love to visit the US). So, for us a strong dollar makes things cheaper for us. A weak dollar makes things more expensive. China does not consume as much, so they want to export stuff. They like a weaker dollar so that their stuff stays cheap. The problem is the more you export the stronger your currency becomes and imports cause the opposite effect. So, to make it overly simple the US should become exporters and China importers. The problem is this is not happening. When China goes to cash in their dollars it will cause the dollar to weaken even more. But, it will strengthen Chinese currency–a lot.
This situation has happened before with Japan. It caused the Yen to skyrocket. How it works is another whole story though.