Identify a Conceptual or Theoretical Framework

Synthesize the Scholarly Literature

BTM-7300 Assignment # 6

Elton Norman

Dr. George Ackerman

7 December 2018

Abstract

This paper focuses on the synthesizing of literature from various sources with critical analysis on the subject “The effect of currency manipulation on the global economy.” From the definition of a synthesizing the literature, this paper explores various academic scholarly resources through comprehensive research skills to ascertain the logical explanation of the subject under study. It pursues a continuation of week 4 studies developing an information-analytical comparison on various views on currency manipulation as subjected to the global economy. It will also help readers underscore the basic knowledge on an aspect of currency and how its manipulation has a significant impact on the global economy. Various authors stand on various empirical and theoretical explanations on the subject with information insight to the audience. To its conclusion, you will be able to identify the use of literature synthesis in enhancing an informative illustration of the subject under study.

Currency manipulation

Censky, (2010), a reporter in CNN explicitly explains the subject of currency manipulation in a diverse way. According to him, currency manipulation is the act of changing the currency value against other currencies instead of leaving it free to fluctuate following the dynamics in the global market. Currency manipulation has a significant impact on the local economy. It is defined by the country’s currency value against the international standards and the exchange rate used. Katz, (2015) argues that a country that is actively involved in exports and import has higher chances of facing the economic currency exchange challenges that can prompt manipulation of currency. As outlined in the CNN reports, China is perceived to be on the forefront for currency manipulation. This is report comes because of currency valuation reports where the Chinese Yuan dropped significantly in 2016 following the US government action on the country’s export surge (Censky, 2010).

Apart from China, some of the countries named as key global currency manipulators include South Korea, Japan, and Thailand. China has received a great amount of attention for its exchange-rate policies, but China is not the only state engaging in such policies. These countries exhibit significant economic valuation activities on the global platform regarding trade and exchange policies (Bergsten, 2017). Besides the four countries, Bergsten, & Gagnon, (2012) opens more insight currency manipulation activities practiced in the Middle East. India is mentioned among the greatest currency manipulators following their currency value in the global economy. The question surrounding Middle East currency manipulation activities, according to the research findings, is concerned with trade activities and economic trade factors practiced by the countries.

The primary driver for currency manipulation is still unknown, however, some research accords the malpractices to the imbalance in the value of the dollar to the local currency. Also, the economic activities performed by the countries imposed a significant challenge to the global economic especially when there is devaluation I the local country’s economy in comparison to the global currency. For a country like China, “Politicians often decree currency manipulation in campaign speeches, congressional committee meetings, and debates to prove to constituents that they will be tough on countries trying to cheat the free market” (Hassan, et al 2016)

The benefit of currency manipulation

As beneficial as it might be to the stakeholders, currency manipulation has a significant impact on both the local government and the global market. As per Jaber, & Jaber, (2017), “since trade happens through the exchange of money, currency can be as important an influence on trade as the qualities of the traded goods or services themselves.” Staiger, & Sykes, (2008) argues differently stating the involvement of the government in subduing the currency market export. According to him, the practice violates the principles of free trade and force the market to ignore normal pressures of supply and demand. Staiger, & Sykes assertions maybe faced-out by Sanford, (2008) perception on the support for free trade. According to him, the free trade supports US exports and American Jobs, but free trade in goods and services requires free trade in currency.

Currency manipulation is illegal since it involves artificial reduction of prices allocated on exports and then flooding other economies with those exported products. The practice may be beneficial to the consumer but has a long-term impact on the global economy and the local producers. It involves violation of the international exchange rate policies and affects the economies through imposing of extra charges to the stated currency rates.

Effect of currency manipulation to the global economy

Manipulation of currency, as explained by Katz, (2015), has significant implication to the US economy which determines the dynamics in the global economy. As reported by Jaber, & Jaber, (2017), a country like China has stimulated a significant level of imbalance in the US-China economic platforms. The relationship between the exchange rate policy and international trade is a question of concern on the global market. In support to Katz, assertions, Nelson, (2013), goes further to explain that “if prices are flexible the effect of exchange rate intervention parallels that of a uniform import tariff and export subsidy, which will have no real effect on trade, an implication of Lerner's symmetry theorem.” The trade policies and trade ties are some of the long-term implication arising from the equivalent economic crises.

Control measures for currency manipulation

While the implication is still impounding, various legal and legislative institutions are taking shape to control the manipulation process that has deeply rooted in the global market. Countries involved in activities are on the look to ascertain the regard to global currency policies (Wong, 2017). According to the US Treasury Department, the Trade Facilitation and Trade Enforcement Act of 2015 should take the lead in publicizing awareness to the local governments and their role in controlling the activity (Sanford, & Library of Congress 2007). The US Treasury Department, since 2015, is performing a three criteria analysis involving material current account surplus, significant bilateral trade surplus and the persistent, one-sided interventions with regard to foreign currency exchange activities. Also, the US government is lobbying for political involvement in the control of the manipulation process. According to Wong, (2017), the US is lobbying the targeted governments to take heed for their currency globalization through the establishment of legislative policies.

Conclusion

In conclusion, currency manipulation has aggregated foreign exchange reserves following the increased foreign participation in the activities. Listed among the leading manipulators globally, China has intrigued into diverse exchange rate reserves implication legal, ethical and economic issues both to the local government and international trade policies. Two most important organizations that should square their trace on controlling the manipulation exercises include International Monetary Fund and the World Trade Organization.

References

Bergsten, C. F. (2017). Currency Manipulation and the NAFTA Renegotiation. The International Economy, 31(3), 30.

Bergsten, C. F., & Gagnon, J. E. (2012). Currency manipulation, the US economy, and the global economic order (pp. 12-25). Washington, DC: Peterson Institute for International Economics.

Censky, A. (2010). What is currency manipulation, anyhow. CNN Money, 11.

Hassan, T. A., Mertens, T. M., Zhang, T., & National Bureau of Economic Research,. (2016). Currency manipulation.

Jaber, M., & Jaber, K. (2017). Currency Substitution and Price Endings: Right Digit Effect. Journal of Global Marketing, 30(4), 238-255.

Katz, R. (2015). The Myth of Currency Manipulation. The International Economy, 29(3), 40.

Nelson, R. M. (2013). Current Debates over Exchange Rates: Overview and Issues for Congress.

Reilly deLutio, C., Trostel, P. A., & Center, M. C. S. P. (2016). 2016 TRADE POLICY ASSESSMENT.

Sanford, J. E., & Library of Congress. (2007). Currency manipulation: The IMF and WTO. Washington, DC: Congressional Research Service, Library of Congress.

Staiger, R. W., & Sykes, A. O. (2008). "Currency manipulation" and world trade. Cambridge, MA: National Bureau of Economic Research.

Wong, C. S. (2017). Regulating Currency Manipulation: Political, Legal and Economic Barriers to Reform. Journal of World Trade, 51(4), 691-710.