When were talking about trade, you’ll probably hear the words “investments”, “portfolios”, “capital”, “debit and credit”, and BOP (thats balance of payments). These words to global trade advisors and financial aficionados are like second nature, but to those just breaking into the world of International Business, they can be daunting words. Let’s use an example that will give you a visual picture of just how everything comes together to understand how countries measure international business activity, balance payments, and look at exchange rates and altered trade prices.
The Group of Twenty (G-20), consisting of industrialized and developing nations, has been prominent in dealing with current economic crises.
Talks took place in Russia February 15th and 16th addressing the current currency wars. Brazilian Finance Minister Guido Mantega commented, “The currency war has become more explicit now because trade conflicts have become sharper. Countries are trying to devalue their currencies because of falling global trade.” That way, exports become more competitive while imports will be reduced.
The U.S. along with other developed nations tend to use quantitative easing as one of their main stimulus measures, in which a central bank buys assets such as government bonds using freshly created money. This results in increasing the supply of currencies such as the U.S. dollar and the U.K. pound; thereby, in the long run, lowering their exchange rate.
The G-20 pledged to “refrain from targeting their currency policies to gain a competitive advantage.” All nations agreed to defuse tensions over unstable exchange rates, marking the first time they were in agreement on such an issue. If all were to engage in competitive devaluation, no country would benefit.
These talks prove G-20 members are moving toward more cooperative efforts. This will help lead the path to global economic growth, which in effect, may help increase U.S. exports and its domestic economy.
In our second installment my colleague Charles Skuba continues the interview with Ambassador Frank Lavin who among other roles, is very involved in the U.S. Pavilion at the Shanghai Expo, which is the largest world’s fair in history. In this second segment of this episode of Thoughts on Marketing and Strategy, Prof. Skuba and Lavin discuss the recent unpegging of the yuan and its effects in China.