The Developing World's Latest Export: Inflation?
Managing the world's economies just got tougher
Trepidation has been widespread among many quarters in America and the EU at the wave of exports emanating out of China and, to a lesser extent, India. Here are a couple of news items from the past week that are likely to bring a fresh outbreak of sweat on the brows of the hallowed folks who manage the world's leading economies.
China, reports Bloomberg, is planning to allow its currency to strengthen as a way of checking the unbridled rise in its foreign exchange reserves (which have crossed the staggering figure of a trillion dollars). The Indian government too has recently indicated its inclination to allow the Rupee to rise .
Is this bad? In fact, isn't it (at least in China's case) precisely what lawmakers in the US have been seeking to achieve?
Perhaps, but the effect of these two government's decisions to allow their respective currencies to strengthen is that their exports will get costlier for countries that buy them. And, in doing so, China and India are bringing to a halt the low-cost foreign goods and services the citizens of America and the EU enjoyed for the past several years. In other words, these countries will now begin exporting inflation to the West.
And so, while many in the West will exult to see these countries's exports get more expensive, they would do well to consider this aspect as well. Goes to show that it isn't always great to get your wish!
Trepidation has been widespread among many quarters in America and the EU at the wave of exports emanating out of China and, to a lesser extent, India. Here are a couple of news items from the past week that are likely to bring a fresh outbreak of sweat on the brows of the hallowed folks who manage the world's leading economies.
China, reports Bloomberg, is planning to allow its currency to strengthen as a way of checking the unbridled rise in its foreign exchange reserves (which have crossed the staggering figure of a trillion dollars). The Indian government too has recently indicated its inclination to allow the Rupee to rise .
Is this bad? In fact, isn't it (at least in China's case) precisely what lawmakers in the US have been seeking to achieve?
Perhaps, but the effect of these two government's decisions to allow their respective currencies to strengthen is that their exports will get costlier for countries that buy them. And, in doing so, China and India are bringing to a halt the low-cost foreign goods and services the citizens of America and the EU enjoyed for the past several years. In other words, these countries will now begin exporting inflation to the West.
And so, while many in the West will exult to see these countries's exports get more expensive, they would do well to consider this aspect as well. Goes to show that it isn't always great to get your wish!
posted by Vivek Pai Kochikar at 12:51 AM
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