Politics, Money and Currency

Generation after generation, the promise has been the same over the years for every politician and
electees for positions with higher power, that is to create a greater economy the world has ever witnessed. The
promise includes many great benefits for its people, to create millions of jobs with high paying salaries to end
poverty, reduce the living cost, secure financial stability, and sky-rocketing stock prices. While also preventing
a sharp rise in inflation and reducing the power in the currency’s purchasing power. But in a world where over
200 countries compete for a stronger currencies and greater economies, the volatility and variability resides as
a constant to provide a scope for trading currencies and securing profit.

Politics and international finance go hand in hand. They cannot be separated nor replaced. In order to
secure financial stability for a country, political relationships with other unwavering and stronger countries
have to be maintained and trade has to be made. For example Japan and the united States of America over the
decades have gone through many political and monetary changes; war, turmoil, recessions, and many more
events that had significant effect over the economy and the value of their currencies. After the Hiroshima
bomb struck the Japanese land, ending many lives and destroying the ability to live a dignified life and work
to earn a living wage, the Japanese economy has suffered and so is their people. A contract has been made
between them and the states to fixate the value of the yen and the dollar to promote growth and stability in the
40’s. Later on, after thirty years, Japan has cut the assistance of American banks. This has resulted in the
volatility of the yen causing it to appreciate and depreciate under certain circumstances, benefiting the people
at time and discouraging the business owners at another, and vice versa.

A strong currency brings a greater purchasing power, but this aim that everyone chases is a double
edged sword to politicians and financial officers. A strong currency as said before, it can benefit another party
leaving the other one at a disadvantage. It can benefit the consumers and the country as a whole in purchasing
foreign goods, services and securities. On the other hand, the disadvantage party are the the domestic
producers who’s goods and services are at high cost comparing what the foreign countries offer, therefore no
one is willing to purchases it. That therefore can harm the domestic economy. This creates an on-going issue,
that inflation and currency prices are inevitable. A sound government have to decide at what point should the
currency value is the optimal for both parties to engage in the buying and selling goods. And decides their
strategy, to be specific, some Asian countries may have depended on exporting products rather than importing,
and vice versa. On another note, these changes reflect the countries’ inflation rates, structural factors, that
include the population growth and economical growth. This results in a differences of value regarding the
recipient from foreign residents.

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 In order to know the true value of a currency, the government has to choose between two options.
The first choice, by pegging and comparing the domestic currency by another country’s currency. In the past,
people used to peg currencies to gold to the actual value. The second choice is to allow market forces to
determine the value.

By default, currencies float, meaning it is not backed by any assets, gold or anything that hold value.
Therefore, it fluctuates as a reaction of the supply and demand market expectations. Its value is also
determined by global demand and the level of foreign reserves. It keeps on floating unless the central bank has
a parity, takes actions and measures to reduce the variations, volatility and deviations if the currency’s value.
On the contrary, bankers, financial officers, foreign exchange traders in large banks, international corporations
and firms, hedge funds benefit from the volatility. They can earn huge profits and seek gains from the
deviations. The larger the change the bigger the revenue.

Either governments will take steps to ensure that these transactions and receipts are more or less
equal to the current currency values, or that these values are adjusted to bring receipts and payments into
balance. Changes in currency values also seem easier to balance payments and receipts than to change
monetary policy and fiscal policy in terms of balancing payments and receipts. Globally, a number of shocks –
shifts in inflation rates, oil price spikes, national savings rates, GDP growth rates, productivity increases in
export sectors, import costs, and rate of return on securities denominated domestic currency – allows
payments to foreign nationals to vary from receipts in the prevalent currency values.

As said before, a strong currency has many disadvantages as it can promote foreign goods rather than
the domestic goods. That took an example from the time in the late eighties when the German euro was
appreciated. It has boosted the sales of the cars competing the with German brands, such as BMW and
Mercedes to brands made in the united states in America; resulting in decline of profit throughout the whole
decade. To battle the losses, the German car manufactures has started to open up plants and facilities in north
America to produce car there as the cost was cheaper. This is an example of exporting a national problem.

Each country’s national central banks wants to control the rate at which its money supply is growing
to meet its objective inflation target and its employment and growth objectives. Because the countries'
objectives and eco-nomic structures differ, some other countries prefer higher rates of money supply growth
than others. Hence, global monetary agreement has to be made and agreed by all. That is why
intraorganizational international bodies are found to organize and accommodate the differences between the
other countries’ objectives regarding inflation rates and unemployment rates to maintain a healthy global
economies. International bodies include the international monetary fund that has over 190 countries enlisted

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in, in which finance ministers and official meet twice a year to discuss the current financial issues,
coordination of frameworks and policies, and ways to solve the issues of common interest.

In conclusion, as all countries are going through globalization, the world is feels like a small village.
Every issue, news, gain or loss affects other countries greatly. So does the politics and tactics of international
money, or finance. It is decentralized, as in a appreciation of the value of the yen can boost the economy or the
sales of a brand in another country. Hence why is it so important to have international bodies to govern the
countries’ financial status, to accommodate the differences between them, and working to what is the best for
the people. A strong currency, as mentioned before, could favor another party, leaving the other party at a
disadvantage. Consumers and the country as a whole will profit from buying foreign goods, services and
securities. On the other hand, the downside is that domestic manufacturers, whose goods and services are at a
high cost, compare what foreign countries sell.