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The International monetary and finance structure - Essay Example

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This growth has be attributed to several factors. For instance, by December 2013, the Chinese Yuan had appreciated cumulatively by 12% to exchange at 6.11 to the dollar compared to…
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The International monetary and finance structure
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The International monetary and finance structure

Download file to see previous pages... The appreciation of the Euro can be attributed to increasing trade surpluses in the Eurozone countries for the past years and the low rates of inflation in the Eurozone countries. For the past years, countries in the Eurozone such as France, Germany and the other seventeen countries have experienced an increase in the amounts of exports compared to imports than other countries. For instance, in 2013, the Euro Zone exports accounted for about 13.2% of GDP while import stood at 12.6% leading to a 2.7 current accounts deficit (De La Dehesa 4). On the other hand, during the same year, U.S. exports accounted for about 13.5% of GDP while imports stood at 16.2% leading to a 2.7 current accounts deficit (4). For this reason, the Euro has been gaining strength especially in the last six years due to better current accounts compared to the U.S.
Conversely, the move by the European Central Bank (ECB) to wipe out about €1 trillion two years out of the economy of the Eurozone in a move to withdraw loans taken by banks during the debt crisis is another significant factor that has led to a higher appreciation of the Euro relative to other world currencies (De Grauwe and Paulson). In addition, De La Dehesa argues that short-term rates in the U.S. react mainly to trends in the U.S.’s equity markets. He goes ahead to say that, for this reason, short-term interest rates have a higher impact on exchange rates in the Euro area unlike in the U.S. For instance, from a historical perspective a rise of 100 basis points in U.S. short-term interest rates leads to an appreciation of the dollar by 1.7% compared to 5.7% in the Euro area (De La Dehesa 4). For this reason, De La Dehesa conclude that the Eurozone economy is more open than the U.S. economy.
The Yuan has been appreciating in recent past due to the massive growth of the Chinese economy. China has grown to become the second-largest ...Download file to see next pagesRead More
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