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The role of Exchange Rate Fluctuations in the Economy
Exchange rate fluctuations play a major role in the country’s economy through determining the value of countries’ currencies which on the other hand determines the value of goods and services in the economy in the country. As college students it’s important to know about foreign exchange rates because they in one way or the other determine what we and other parents spend in terms of how much the U.S dollar ways against the Chinese yuan or Canadian dollar or Japanese yen. Currencies are one of the most important issues in the economy and it’s important to understand that they are influenced by the foreign exchange rate system which fluctuates from time to time leading to economic situations like inflation.
The exchange rate of one currencies are affected by numerous fundamental and technical factors which include relative supply and demand of the two currencies, economic performance, outlook for inflation, interest rate differentials, capital flows, technical support and resistance levels, among others.
The values of different currencies fluctuate from one moment to the next. Although a currency’s level is largely supposed to be determined by the underlying economy, economic situations always influence the currencies of different countries overtime.
Today’s currency fluctuation can be observed from the power of the dollar and how it influences the value of the Euro, the pound, the Japanese yen or Chinese yuan and how they influence all economic situations in the world today. The value of currencies of countries with the best economies set the exchange rate of the developing countries like Poland, South Africa, Uganda, Kenya, Vietnam or India.
Looking at the bigger picture of how currency fluctuations influence the economy is in a way that they determine which countries investors should invest in.
Investors always prefer to invest in countries with economies that have a higher currency value with a higher exchange rate.
Currencies with relatively good exchange rates like the Dollar, euro, pound, and yen are preferred because they influence the market for both exports and imports on the World market.
A good example is when the European pound declined effectively and that boosted UK investors’ returns from 3% to almost 20% (Investopedia). What happened during the 2008 financial crisis is another description of how currency fluctuations affect the economy, economic conditions lead to rise in the inflation rate, unemployment, and fall of the stock exchange market which lead to fluctuation in exchange rates due to the appreciation in value of the dollar over other major currencies like the yen, pound and Euro which left the economies of most developing countries like Ukraine, Argentina, Poland, Jamaica, Bulgaria, Mexico among others.
Exchange rate fluctuations are also highly affected by political factors mostly during shift in power in presidential positions. Investors usually speculate exchange rates to fluctuate because they are not certain about the economic policies that every president is going to establish for example trade, foreign policy, taxation policies among others. More recently after the election of Brexit in the UK and Trump in the U.S, it important to note that exchange rate fluctuations emerged at a higher level and this is because the stock exchange market had dropped, investors didn’t want to risk investing their money in the economy before examining what the next foreign exchange and trade policies were going to be.
On the larger scale the effects of the Trump and Brexit election impacts the economies of other countries because currencies of both UK and the US (the dollar and the Pound) leads to exchange rate fluctuations around the world which affects the currencies of developing economies.
Overall exchange rate fluctuations are a key factor in running the world’s economy because they are responsible for influencing a variety of economic factors like international trade, the value of currencies like the yen, dollar or pound, stock exchange market among others. However, it’s crucial to understand that there are a wide range of economic issues that can alter the economy and lead to exchange rate fluctuations including political stability, inflation, interest rates, stock exchange market among other.
Gender Representation and The Japanese Economy
Women, who make up half the working-age population and represent less than one-third of the labor force around the world, are now the most powerful tool for global economic growth. While there is room for improvement in the incorporation of women into the workforce in all countries around the world, Japan shows an especially great need for progress since it has the largest gender gap among high-income countries. This gender gap has not only caused demographic issues in the country, but is the underlying reason that the economy has begun to stagnate. Thus, the biggest step that Japan can take to increase its economic growth is to implement a structural reform in order to propel the move to incorporate more women into its workforce. This strategy will lead to an economic revitalization through an increase in corporate profits, greater productivity, and increased consumption.
The Japanese economy is stagnating.
Its growth is necessary to the long run success of the country. There is pervasive deflation, weak asset prices, rising public debt, and crumbling international competitiveness. Throughout the years, Japan has searched for ways to solve these problems by creating strategies that focus on fiscal and monetary policy changes. However, none of these strategies hit to the core of the problem, which is the long-standing inability of the country to incorporate increased female participation in the labor force. Not only does increasing female participation allow Japan to capitalize on its greatest hidden asset, but also the benefits of this participation are far reaching and will allow the country to increase its GDP by 13% (Matsui).
In recent years, the Japanese government was finally able to recognize the need for the turnaround of the female participation in the workforce. Prime Minister Shinzo Abe laid out a set of policies, namely Abenomics, which promote the economic stabilization and expansion of the Japanese economy. In this plan, Abe recognizes the severity of the problem of the low female participation in the workforce, and he incorporates an initiative called “womenomics” into his policy reform. This initiative includes greater access to daycare, tax reform that will eliminate tax breaks for non-working spouses, as well as goals for the labor participation rate by 2020.
This plan will not only aid in breaking down the societal barriers to give women the opportunity to seek employment, but it will also allow Japanese industry to flourish. The increase in female participation in the labor force will help offset the negative effect of a dwindling pool of labor on income and demand growth over the long run. Additionally, closing the gender gap will boost corporate performance and allow for a more diverse workforce that is ultimately more productive.
Womenomics has been disputed based on its potential inability to overcome the deeply entrenched societal norms. Critics of the policy of womenomics believe that it can work in theory, but that the theory will break down on a practical level. This thought is based on the idea that corporate culture and employer practice will not allow the policy to thrive in the business world in Japan. However, critics fail to realize that Japanese culture is going through a transformation. Japan has arrived at a crossroads and is continuing to evolve and be able to embrace a variety of new ideals. This will allow new policies and change to be more widely accepted in the country.
Since many high-income nations have a greater female participation rate than Japan, it is important to look to other countries as a model for strategies Japan can take to increase its success in this endeavor. Sweden has the highest employment rate of women in the EU and has been able to see economic growth as a result of the equality in society. The government in Sweden has made it a priority to create policies that support companies in their attempts to gain better access to the talent pool. The policies have allowed Sweden to reach its full potential in GDP growth, but Japan has been unable to realize the same level of growth due to its lack of development of female labor participation (“The Current Situation of Gender Equality in Sweden – Country Profile”).
Ultimately, Japan’s economy is stuck and in order to get out of this rut, there needs to be a structural reform that allows for the growing of the female participation in the workforce. This is imperative for Japan to continue to be a major player on the world stage and to reach its full potential in GDP growth. Womenomics will be a good start for Japan to begin to initiate this change, but there will need to be further policy initiatives as can be seen with Sweden that will boost the economy even further. This will allow Japan to realize its full potential and stimulate growth in the economy.
Carbon Tax, the Solution We Can All Agree On
The United States should implement a carbon tax in order to deter the demand, and thus use, of carbon-intensive power. First, it is imperative to understand what a carbon tax is. According to the Organization for Economic Co-operation and Development, a carbon tax is “a tax on the use of fossil fuels in direct proportion to their CO2 emissions [which gives] each energy user the same incentive to abate and leave the least-cost abatement decision to the individual” (OECD Economic Studies 17, 1991). With adjustments to the current tax policy, a carbon tax can be instituted in a way that is effective in diminishing pollution, while also not financially crippling.
Historically, environmental regulations have sometimes been contentious topics of debate between Republicans and Democrats. Carrying this dichotomy to its extreme, some may support any type of environmental regulation regardless of potentially crippling economic consequences, while others may believe that business should have free and unencumbered reign to create wealth and profit, without considering the effects of pollution and other external costs on human and environmental health.
The so-called carbon tax elicits some of these same responses – some see it as a job-killer, which others view it as an effective tool to incentivize innovation and efficiency.
They argue that carbon dioxide (CO2) spewing into the atmosphere is just another form of pollution – and why wouldn’t we want to find a way to reduce it just like we attempt to eliminate lead in paint or arsenic in drinking water? With the appointment of Scott Pruitt as the Administrator of the Environmental Protection Agency (EPA), many Republican’s and Democrats alike are left wondering to what to extent the EPA will change in the coming years.
One of the great things about the study of sustainability is that potentially contentious topics can be viewed in a way that defines middle ground and allows us to move forward. An underlying tenet of sustainability is that there must be a balance. The triple bottom line, which includes people, profit, and planet, is one of the foundational concepts in sustainability. Further, the triple bottom line attempts to ensure the balance between what is best for people, businesses, and Earth.
Let’s take a look at Sweden. Back in 1991, Sweden enacted a carbon tax levied on the use of oil, coal, natural gas, bottled gas, and petrol. Sweden used the tax revenue from their carbon tax to subsidize the use of renewable sources of energy. Since 1991 carbon emissions have decreased by 40% in Sweden. If this wasn’t enough, Sweden has experienced incredible economic prosperity over the last 26 years and has blossomed into one of Europe’s most successful economies. Numbers provided by the International Monetary Fund (IMF) show that although Sweden is a “sparsely” populated country, with under 10 million residents, their gross domestic product (aka GDP – a measure of total output in a country) is projected to be the 23rd highest in the world in 2017. Sweden has a goal of being the first oil-free country by 2020.
The United States should take a few pages out of Sweden’s book. Currently, the United States has an excess of taxes. Many taxes are obtrusive and lack efficiency. Some would say a perfect example of this is the estate “death” tax. As per the Internal Revenue Service (IRS), “the Estate Tax is a tax on your right to transfer property at your death.” Chris Christie, the governor of New Jersey who recently ran for the presidency, has been working on an interesting piece of legislation. One of Christie’s campaign promises in his gubernatorial race was to never increase gas taxes; however, he was faced with a situation where he no longer had any choice. The interesting part of this situation was that Christie eliminated the death tax in exchange for the gas tax. Although this is not necessarily a carbon tax, this case exhibits possibilities of a structure for a national carbon tax. Cutting a seemingly ineffective tax that goes straight into the government’s pockets, while simultaneously implementing a tax whose revenue will be reinvested in businesses is a double positive.
As American’s we all want the same thing, THE BEST AMERICA POSSIBLE. Let’s come together and attain that by listening to rational opinions and planning for the common good. Let’s fight for the triple bottom line which will help ensure a better future for generations to come. Instituting a carbon tax will benefit people, profits, and the planet. Through tax reform, starting with an elimination of the death tax, a carbon tax will not be financially devastating to businesses or families. Let us reap the rewards of a cleaner planet, because in the end, who doesn’t want that?
Private Property: Keep Out
Property rights—protecting land ownership—are a necessary part of a functioning economy, and an important issue for the modern citizen to understand. Modern studies show that landowners need to be protected in order to encourage sustainable economic growth. Without proper protection of land ownership, production will decrease and the economy, and society as a whole, will suffer greatly.
However, experts did not always agree with the idea of protecting landowners. Some early economists, such as Karl Marx and David Ricardo, argued that landowners were in a constant struggle with capitalists (think banks and investors) and workers for profit. This meant that the landowners profited at the worker’s expense, and did not have to work for their profits. This led Marx to arguing that land should be collectivized so the workers, who are the ones creating the products, would reap the rewards of their labor.
Later economists, such as Eugen Böhm-Bawerk, a late 19th century Austrian economist, disagreed with Marx over the role of landowners in the economy. Böhm-Bawerk argued that the landowners’ work to improve land for production, or their “investment” in it, allowed the workers to produce more, thus increasing profits for everyone. Similarly, landowners don’t earn a profit until after the work on their land has been done and their profits relate to how well their land produces, which encourages them to contribute to production.
Böhm-Bawerk’s work agrees with modern studies of property rights, including Simon Johnson of MIT, John McMillan of Stanford, and Christopher Woodruff of UC San Diego, who claim in their article “Property Rights and Finance” that “less secure property rights are correlated with lower aggregate investment and slower economic growth.”
The necessity of property rights show that landowners are essential for improved investment, and therefore growth, within an economy.
Laws enacted to protect landowners and encourage them to invest in their lands are known as “property rights.”
Many countries heed the Austrian’s argument and strive to make strong property rights a central focus in economic policy. However, some more socialist lawmakers may still disagree with the landowners’ role in the economy, and wish to see a society where the laborers on the land, not the owners of it, share profits.
Although modern examples of this Marxian society are sparse, collectivization of agricultural land in the early Soviet Union provides one of the clearest examples of an attempt to eliminate landownership. In the late 1920’s Joseph Stalin decided that the Soviet Union should collectivize agricultural land, in an effort to increase industrial and agricultural output. Farm owners, a majority being peasants fearing for their livelihood, revolted, which led to a major famine. Stalin attempted to collectivize land again in 1931, and was finally successful. However, a worse famine arose in 1932-33, which, combined with the earlier famine, killed 5 million people. In the end, grain production eventually increased, however the production of farm animals never returned to pre-collectivization levels. Furthermore, the government only left the farmers 10% of their profits to live off of.
The lack of outstanding economic success coupled with the tragedy of losing millions of lives indicates that the collectivization of land was a colossal failure. If property rights are not secured, proper investment, which leads to production, will not occur, and humanity will suffer.