If China pegs their money to the US dollar to get a trade advantage.?

Why don't we peg the dollar to the Euro to get a trade surplus on those European bastards ?

Why does America always tolerate imbalanced trade ? We export almost nothing while importing everything, and it has costed us millions of jobs.
Why not turn the tables on those protectionist countries like China, Japan, and Europe ?

Answer:
When a country pegs its currency to another, the country loses flexibility over its money supply and its ability to influence other domestic macroeconomic variables (interest rates, inflation, unemployment). The central bank/Fed must do what it takes with reserves and the money supply to maintain that exchange rate target, then the ability to target price levels or output/unemployment decreases significantly.

For example, say the Euro begins to depreciate. If the US has to make dollars less attractive to keep a fixed exchange rate and thus would either have to intervene in currency markets or lower interest rates (increase money supply -- increase aggregate demand-- rise in price levels).

Pegging your currency to a stable, large economy country's currency may have value to a smaller country trying to gain macroeconomic stability because the policy takes autonomy away from policy makers. However, even then, there can be consequences (look at Argentina's history of pegging to the dollar). For a larger country, the policy can result in speculative attacks (look at what Soros et al. did to Italy and UK in 1992 when the ERM was in place in pre-Euro Europe).

While China may be gaining from keeping the value of Yuan depressed relative to a true market float against the dollar, the result has been to starve certain industries in China from capital flows for investment -- a policy the Chinese can do because of a high degree of centralized control, but possibly disasterous for long-term economic growth.

Finally, the Euro (and British pound) have appreciated significantly against the dollar so to the degree exchange rates impact net exports, the market is already moving in the U.S. favor without the need for interventionist policies.
People are starving in africa and dying of aids, people with less than 20 dollars to live off of and all you care about is your money and i quote

"Pegging the dollar to the euro to get a trade surplus on those European bastards"

Just get a life puhleese

The answers post by the user, for information only, FunQA.com does not guarantee the right.



More Questions and Answers:
  • Can a poor country get rich too quickly?
  • Microecomnomics: What is consumer surplus and producer surplus?
  • Just who has the most oil reserves in the world. The whole of the American continent or the OPEC nations.?
  • What do you consider to be the most valuable and important natural resource. Is it being conserved? If not,?
  • Who is Responsible for high gas prices in the U.S.A? The oil companies or the American Consumers?
  • Has global wealth increased or distributed over time? Not quality of life but wealth.?
  • What is Tamil Nadu's rank with respect to market capacity among Indian states?
  • Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part?
  • If you could be any thin what would you be?
  • Australia‚Äôs current economic state?