After the collapse of the exchange rate system the European Union tried to introduce its own system called the Exchange Rate Mechanism (ERM). They then fixed exchange rates between members completely by introducing a single currency; the Euro. However control over the exchange rate comes at a cost to control over the national economy. No country that has the Euro can set its own interest rates. The rate is the same everywhere even if one country is in a recession and another is in an inflationary boom. When Britain was in the ERM the government was forced to raise interest rates twice in one day from 10% to 12% to 15% to attract foreign money into the country and prop up the value of the pound. Once government stops trying to set exchange rates it is able to use interest rates for other purposes, such a setting a target for growth or inflation. It's still currency manipulation, just with a different goal.
Just like the Roman Emperors, our politicians use currency manipulation for their own benefit. The cost to us of having money now is the interest we pay later. By printing more and increasing supply, governments can make money cheaper. They do this around election time to make mortgages or credit card debt cost less and encourage investment and job creation. It makes us feel better off in the short run but the cost of cheap money is that the money we have already saved is worth less too. They are so bad at this that investors have lost confidence and politicians have been forced to hand power over to independent central banks like the Federal Reserve which were once rare but are now the norm. However the manipulation does not stop there.
Every major western government is borrowing hand over fist and the central bankers they appoint are printing money to prevent their profligacy from sending the cost of borrowing sky high. The US Congress, although by no means the only offender, is the worst. The only reason that this has not caused massive inflation is because China has so far been willing to take worthless paper in return for real goods. Like all rulers they're not acting out of the goodness of their hearts. A bout of inflation in China's number one customer would threaten Chinese prosperity and stability, and that would be bad for the communists.
Article comments
1 - mark richard adam
and you will never understand that.
2 - azminivanracer
interesting bit here.
while its interesting, you provide no hard facts as to what the government is doing to ACTUALLY manupulate the value of the currency. there is more to it than lying and saying its worth more. there are intracate pieces in play. the government (with the acception of the bush administration) thinks things through. "the government doesnt take a dump without a plan"
so while your piece was intriguing and interesting to read, im still not convinced (by you)
3 - stoneweapon
At some point we have to blame China for not reciprocating trade or blame ourselves for consuming more than we produce. If Chinese corporate and government sectors think they can get away without penalty; oppressing their own people for cheap labor and hoarding trillions of dollars worth in foreign currencies from their largest customers for the use of strategic natural resources instead of buying the goods and services that we can provide to benefit their people, then they are wrong. If the US cannot work off its debt, eventually the debt is printed to balance the trade. The devaluation of the USD is punishment to China for hoarding and not reciprocation trade, and it is punishment to the US for consuming more it produces.