Hi I have a few economic questions regarding a currency’s value. (aka the international exchange rate or forex) If any kind forex economic gurus out there can clarify my questions then my post can answer any questions other future newbies may have.
1.) A currency’s exchange rate is driven by supply and demand. If a country has a surplus balance of trade like China then the yuan goes up. Trade partners buys renminbi to pay for the goods and services in China.
Similarly the price of gold and crude oil is denominated in USD keeping the demand for USD and keeping the greenback up.
China and Japan keeps interest rates low to keep the renminbi and yen affordable hence promote more trade.
(Is this a correct assumption? If international trades are paid for in money then China and Japan are practically giving their goods and services away free…)
( is that why China and India are pushing for gold as the standard trade bartering system)
Due to economic competition China and Japan has to keep their currency low to drive more trades
When one nation trade with foreign nation the debt are accounted in the creditors nation’s money interest rate. The debts need to be eventually settled in the creditors nation currency.
Here is what confusing…
If the interest rate of the creditors nation is kept low to promote more trades then again China as a supplier of goods and services are practically giving away their goods and services free.
If the interest rate of the debtors nation currency is also practically very low then they can pay for those debts with little effort.
Is that why if US were to increase their interest rates by a few basis points that would drive up their debt with China by many more trillions of dollars.