US faces accusations of double-standards in ongoing currency dispute

22 November 2010

After heavily criticising China for alleged currency manipulation, the United States Federal Reserve has announced an injection of $600 billion to buy government bonds, thus weakening the dollar and making exports cheaper and imports more expensive.

Unsurprisingly, China, the EU and Brazil have reacted negatively to the move, the Chinese and the Germans have especially noted the irony of the US criticising China whilst at the same time employing the same tactics. Whether this is a tit-for-tat move or whether we are seeing a concerted move toward protectionism through currency manipulation remains to be seen but this issue is now one of the biggest barriers in the World Trade Organisation.

The table below shows the Customs Exchange Rates of the British Pound against the Euro and the US Dollar over the past three years.

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Customs Exchange Rates 2007-10

Weaker foreign currencies mean that importers get “more for their money” when sourcing products. Conversely a weaker pound will boost exports but will also result in increased costs for an importer. The importers money will not stretch as far when sourcing products abroad but also by spending more, the customs value of the imported product will go up and thus so will the import duty bill.

 

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