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Tuesday, May 02, 2006
Please stand up!
I read a statement in Business world recently. Though I don't recollect the exactly it was something like this: "There is an imbalance created in the global economy. The deficit of US economy is increasing. While Asian economies (especially China and India) are growing with surplus. To balance this, the pressure is on Asian countries to revalue their currencies and try to focus on their local markets."

I understand the imbalance, though vaguely. But I'm not getting the idea of why we should revalue? Can somebody dissect this statement and explain?

Will the real slim shady please stand up? ;D
posted by Sunil @ 1:37 AM  
9 Comments:
  • At 4:59 AM, Blogger Ramkumar said…

    yen sitrarivuku yetunatha solraen. in a long run, certain things are established like dollar is b/w Rs.40- Rs.50. say now, we export more to US as they r very good at spending, the rupee value goes up. y it goes up. becos, to pay bills they need rupee, hence our value goes up. say v r doing so well that dollar has become Rs.35. now, US is not happy with this. it asks india to de-value. meaning US dollar reserve in india is too much and v r supposed to reduce that. how can v devalue? by buying their govt. securities. the interest rate is too low on US securities. though india knows this is stupid to do, v have to do it. y ?? becos US is the market by which our rupee got appreciated and they r controlling many avenues as far as business is concerned. they will threaten that they wud give subsidies for local products and so on.
    they r just resisting sharp decline in dollar value. gradual decline they can't stop it.

     
  • At 5:58 AM, Blogger Iday said…

    Gradual decline - we wotn allow even that :)
    The Dollar Rupee equation is very essential for the economy of the "dependant" countries...
    So, come what may, the 2 govts will work in tandem to keep the equation within allowable limits. so dollor will not go above, say, 48 and not below, say, 42 - considering 45 as the median amount!!!

    BTW - Ramu?! Ennennavo pesure. Unna paatha perumaya irukku!!!
    ippadi ellam pesuna appram unga appa MBA padikka sollama vera enna solluvaaru :(

     
  • At 7:00 AM, Blogger Sunil said…

    Good explanation machi. I still have some doubts, let me compose myself before asking. BTW, why is that "I'm modest" sounding quote at the start? :)

     
  • At 12:49 AM, Blogger Sunil said…

    I foundlot of useful info on Wiki... But couldn't find time to read it.
    http://en.wikipedia.org/wiki/Devaluation
    http://www.uiowa.edu/ifdebook/faq/faq_docs/capital_controls.shtml
    http://en.wikipedia.org/wiki/Inflation
    http://en.wikipedia.org/wiki/Monetary_policy
    http://en.wikipedia.org/wiki/Fiscal_policy
    http://en.wikipedia.org/wiki/Central_bank

    nyayama chinna vayasula padichirukkalam (in IM)...

    one more very good link for those who are interested in World bank / IMF

    http://www.uiowa.edu/ifdebook/ebook2/contents/contents.shtml

    Anybody who reads it, please don't forget to write a user friendly article to the blog :)

     
  • At 12:57 AM, Blogger Ramkumar said…

    sudden change no economist wud like to happen. gradual decline is possible. it is influenced by many factors. if v cud make both economic and political strides in the world, dollar will definetly depreciate. even that is not necessary. if v cud take away the dependency over US economy that wud also decrease the dollar value. don't ask if this cud happen or not. i am just saying it is possible.
    @sunil: am i deviating from ur question too much?

     
  • At 12:57 AM, Blogger Iday said…

    Sure - will do that!!!
    Thanks for "the activity of the day, or rather night" :)

    BTW - i always thought www.investopedia.come was the place to know stuff. I heard economic times has an online dictionary as well, which is pretty useful.

     
  • At 2:29 AM, Blogger Sunil said…

    @Ram - Politics and economics are inseperable when we start thinking outside India. You are not deviating. Something I realised is, unless we know the some economical funda we can never judge the political scenario. We can either opt to look everything in a positive perception (as SW engineers : Globalisation) or negative (as Communists : Globalisation). I too have the view point that we should grow more self reliant (or into wider markets), else the dependency on a single country would knock us off. But at the same time, say if you are a 'potti kadai' owner and a 'pannayar' places large order, it's true that your growth will depend on the pannayar. You may think of diversification but what can you do if others in your village are either poor or stringent or already have the goods? I wish you get the analogy :) In one sense, the European market is encouraging a 'closed' behavior (that is the idea behind EU, business within their member countries made easier). Politically they may do it to bring back the 'european' dominance in the globe. Another growing market, China is in a position to bring in 'cheap' products to Indian market. It's up to your imagination to think about the probability of the reverse. We are not 'producers' but 'service providers'. Going back to my analogy, our position is worse than a shopkeeper, we are more like a 'dhobi' for example. For real growth we have to break this barrier. A small businessman may grow bigger than his rich counterparts, but a servant can never outgrow his master.

    @Idaya - That's the enthu machi. You'll get 25% hike before the day you join my company ;).

     
  • At 2:46 AM, Blogger Iday said…

    EU??? To bring back the European dominance!!!
    Well - i cant hold back applauding the American "Check-Game" move to keep UK "afloat" in the EU :) The biggest challenge was the single currecy, and the brits say "we aint interested" :)

    @Sunil - "joining" ur company?!? Well - i was thinking of a Board member position with a role of something like "strategic consultant" or "COO" or "CFO" - u know the big buck names which come up on WSJ ;)

     
  • At 3:48 AM, Blogger Sunil said…

    I don't know what to infer from:
    " EU??? To bring back the European dominance!!!"

     
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