Currency wars are said to occur when countries seek to devalue their currency to gain a competitive advantage. However, if one country seeks to become more competitive through devaluation, it means other countries become less competitive. Therefore, they may respond by weakening their currency too. Thus, we may get a situation of competitive devaluation where …
Definition of a Fixed Exchange Rate: This occurs when the government seeks to keep the value of a currency fixed against another currency. e.g. the value of the Pound Sterling fixed against the Euro at £1 = €1.1 Semi-Fixed Exchange Rate. This occurs when the government seeks to keep the value of a currency between …
Readers Question: Evaluate the advantages and disadvantages of both a floating exchange rate and a fixed exchange rate. Is there a “better” one to have? A fixed exchange rate occurs when a currency is kept at a certain level compared to other currencies. In practice, many of them are semi-fixed exchange rates like the Exchange …
Competitive devaluation occurs when countries seek to reduce the value of their exchange rate to make their exports cheaper and gain a competitive advantage in world trade over other countries. This may encourage other countries to respond by also devaluing their currency to maintain their own competitive advantage. If countries are making great efforts to …
Bank of England base interest rates are currently 0.5%. Economists are divided about when interest rates will rise. Some point to the evidence of a strong economic recovery to suggest interest rates could rise by mid 2015. Others argue that the strong global deflationary pressures mean that UK inflation is likely to stay very low …
Currency substitution occurs when a country uses another currency without any official backing and without a Central Bank – instead of using its own currency. For example, Panama uses the US Dollar as its currency. Even though it has no formal currency union with the UK. Jersey uses Sterling unofficially too. The advantage is that …
If Scotland gains independence, the Yes campaign has argued that their preferred option is to keep the Pound Sterling and enter into a currency union with the rest of the UK. This means sharing the same currency Pound Sterling, and having the same monetary policy. Monetary policy would continue to be set by the Bank …
Readers question: Would Independent Scotland be better with the Pound, Euro or an independent currency? What are the risks for each scenario? Scotland using the Euro If Scotland use the Euro there will be some benefits from having a shared currency with the rest of the Eurozone. Scottish business and personal users will have lower …