Page 202 - TrumpsEconEra_Flat

Chapter 10: Trade & Currency Wars

How China manages its currency is one of the
most consequential decisions in global financial
markets. The close alignment with the dollar could ease
the threat of a trade war with the U.S. after President
Trump had claimed China had exploited weaknesses in
the currency at the expense of its trading partners. Mr.
Trump has refrained from labeling China, a currency
manipulator.

Argentina has pegged its currency, the Argentine
peso, to the U.S. dollar. When the dollar increased in
value, so did the peso, enabling consumers to buy less
expensive foreign products while neglecting to buy the
more expensive domestic products, forcing Argentina
businesses into bankruptcy.

In a freely flexible
More than 60% of all
international exchange rate
foreign currency
system, interest rates, the
reserves in the world
expected inflation rate, are in U.S. dollars.
and the stability of a
country influence demand
for a currency. People want to keep their money where
they can earn a decent return, where the inflation rate is
low, and where the money would be safe. In the past,
the American dollar met all these needs. Although the
American dollar remains stable, only the future will tell
what effect changing world events will have on its
value.

The demand for the American dollar remained
strong because the Petrodollar System made the dollar
the world’s standard currency. Even though the euro is
the second largest traded currency next to the American

-201-