Wednesday, May 09, 2007

Forex Patriotism

Whatever you do, do big. Especially when you are a nation. Shake the earth, surprise the world. Size and scale helps a lot - at least it makes the competition wilt.

Look at the economies of US & China. The former is the world's biggest importer and the latter is the greatest exporter. What happens when the currency of the world’s largest consumption economy - the US $, depreciates against other world currencies ? The whole world is affected, except that of China that artificially manages to hold its currency weak.
It is not "protectionist" to complain about policies that are predatory; China's are just that. The logic of free trade is that comparative advantage ultimately benefits everyone. Countries specialize in what they do best. Production and living standards rise. But the logic does not allow for one country's trade systematically depress its trading partners' production and employment. Down that path lie resentment and political backlash. More from Washington Post Op-Ed columnist Robert J Samuelson here.

Be it the developed market like UK or an emerging economy like India, the rising $ casts a pall of gloom for export oriented businesses. United in grief, this is one occasion when they are free to be a tad less patriotic – and pray for their local currency to fall without any sense of guilt. (Net importers or travelers heading to the US in need of cheap $, please excuse).

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