Current account surplus deficit if negative), bilions of U.S. dollars -1000 f 20

Question

Current account surplus deficit if negative), bilions of U.S. dollars -1000 f 2012 United Central Euro Latin Newly Russia Japan Middle China States and Area America Industrial East and Asia Caribbean Europe FIGURE 19- Global External Imbalances, 1999-2012 During the 2000s, the large increase in the U.S. current account deficit was financed by increases in the surpluses of Asian countries inotably Chinal, Latin America, and oil exporters. After 2007 the shrank but remained substantial. have risen, encouraging U.S saving and discouraging U.S. investment. How could the opposite, a fall in real interest rates, have happened? Why, moreover, was this phenem enon also seen in other countries, as shown in Figure 19-9? The answer must lie n change in saving and investment behavior outside of the United States Figure 19-8 shows that over the 2000s, current account surpluses rose in Russia Middle East, Asia (notably China, but also Japan and newly industrialized countra such as Singapore and Taiwan), and Latin America. The surplus of Africa (not h in the figure) also increased. Economists still debate the causes of these but a number of likely factors stand out. One of these was the as major player in the world economy, especially after it joined the worrtat Organization in December 2001. Growth in the private Chinese economysip the late 1970s led to very rapid economic expansion, but also to economicl bend for much of the country's huge population-for example, a reduction in s such as health care, which state-owned firms had earlier supplied. As a p measure, the Chinese saved more than they had in the past. At the same tinie torrid economic growth (coupled with rather strong growth in increased the prices of a range of primary commodities, notably petroleun enues from exporting Brazilian soybeans and iron, Malaysian palm oil. aniu ly after it joined the World Trad ny starting the Unit he n palm oil, and

Explanation / Answer

we know that US doller is the dominated currency. we also know that the forien exchange reserve was consist of the various currencies that can be used as reserve currency.only those currencies are freely exchanged and commonly accepted by all the nations. before wold war first british pound was the dominant currency in the world. but after world war second the US doller was the major currency in the world. whic was easily converted in to gold.

since the late part of the 1960s the economic strength of the united state was continuasly declaining with increasing detoriating balance of payments, the gold reserves and domestc capital have outflowing very largly. the US doller currency occured frequantly. this will severly damaged US doller in the international reserves. in 1973 the collapse of bretton wood system and the adoption of floating exchange rate system also elarged the risk of US doller in the market. at the same time the rapid development of germany and japan will caused the japaneese yen and german mark has increased largly. this will also reduce the US doller dominance. at the end of 1970s the european currency unit as a basket of currency, had become a reserve currency.

the IMF publication of world einancial stability report revealed that world reseve was enriched very highly. the China, India and Russia were the largest foriegn exchange rreserves in the world. resently the US doller was devalued continuasly.and many private entities are reduced their holding at US doller. but the government institution has never reduced their holding at US doller it has helped to stabilize the American capital market and to support American economy.

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