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currency war - Shanmugam IAS academy in coimbatore
currency war

CURRENCY WAR

What’s in news?

China let the yuan drop to its lowest value since 2008. The currency is now trading at just over 7 yuan to the dollar.

Key data’s:

  • The decision is a step toward what could become an unusual kind of currency war, one in which the U.S. would intervene to counteract the effects of China’s weakened currency or both countries would even take steps to increase the value of the other’s currency relative to their own.
  • USA accusing China was currency manipulator as they devalue their currency.
  • China’s central bank, the People’s Bank of China, signals each morning what its desired foreign exchange rate for the yuan will be and allows it to rise or fall through the day.
  • For the last 11 years, China has kept its currency below a symbolic 7-to-1 ratio to the dollar — until last week.
  • It’s a big change. Since 2016, China’s monetary policy has actually been to prop up the yuan’s value.
  • The 2015 Trade Enforcement Act lays out three criteria for what constitutes manipulation:
  • An annual $20 billion bilateral surplus with the U.S.,
  • A large enough overall current account surplus (above 3% of the country’s annual GDP) and
  • “Persistent one-sided intervention” in the foreign exchange market to depreciate its currency.

Currency war:

  • The U.S. could threaten to buy up large amounts of Chinese government bonds, which would push up the yuan’s value, even if China wants it to depreciate. But China could also counter by buying up more U.S. Treasury bonds, driving up the dollar.
  • China has also long been pushing for its currency to overtake the dollar in international influence.

Step forward in future:

  • The Trump administration could create a legal justification for hiking tariffs on Chinese goods to the U.S. to offset any export advantage gained through a weaker yuan.
  • This step would break global trade rules, but the U.S. has already flouted those regulations by levying tariffs on Chinese imports as part of the ongoing trade war.
  • The U.S. could begin negotiations with China through the International Monetary Fund, but such talks may be seen as symbolic.

 

FALAGH

What’s in news?

Iran unveiled a locally upgraded missile defense system with a range of 400 kilometers (250 miles).

Key data’s:

  • The upgraded missile defense system armed with “high capabilities” and able to defend against cruise and ballistic missiles and drones.
  • The “Falagh” is a locally overhauled version of the imported “Gamma” surveillance radar.
  • The (Falaq) system was developed in order to counter sanctions restricting access to spare parts of a previously foreign-developed system.

Feature of the radar:

  • The radar is capable of identifying and finding all types of cruise missiles, stealth aircraft, drone systems and also ballistic missiles within a 400-kilometer range.
  • Capable of connecting to the Islamic republic’s air defence network and completing the coverage of the S-300 missile system it acquired from Russia.

 

Links to note:

https://www.iasipstnpsc.in/us-china-trade-war/

https://www.reuters.com/article/us-mideast-iran-missiles/iran-unveils-upgraded-missile-defense-system-idUSKCN1V007N

https://www.npr.org/2019/08/11/749655951/a-u-s-china-currency-war-what-you-need-to-know

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