World Finance Problems
The rise of globalism means economies are growing increasingly interconnected. Though globalism brings many benefits such as facilitation of trade and fewer conflicts between countries with linked economies, many problems occur as well. Furthermore, mediating these problems is sometimes difficult when few international trade laws are enforceable.
Other People Are Reading
-
Features of Trade Deficits
-
Imports present consumers with a wider variety of products and often at lower prices. However, importing too many goods results in deep trade deficits. For instance, the United States used to be termed a 'net creditor,' which meant the country exported more goods than it imported. Now, the United States is a 'net debtor' and has a deep trade deficit in part because the country imports so many cheap goods from China. Though the short-term problems of trade deficits are few, the U.S. Congressional Budget Office cites potential long-term problems including a reduction in savings, job losses in manufacturing sectors and other outsourced industries and possible instability in the U.S. economy.
Identification of Competitive Currency Devaluation
-
Many countries adjust the strength of their currency for strategic purposes, which can pose problems. For instance, European countries post-WWII competitively devalued their currency to entice other countries to buy their exports. This competitiveness made all of the countries worse off. A 2010 Bloomberg News article explains that many countries desire China to appreciate its currency, the yuan, to lower the trade deficits of the U.S. and several European countries.
-
Significance of Monetary Unions
-
Monetary unions between countries can pose global finance problems if the economies in the countries are diverse. The European Union is one primary example of a currency union that experienced problems in 2010 as a result of differing economies. 'The New York Times' explains how many European countries belonging to the union, such as Portugal and Italy, experienced financial problems as a result of Greece's debt crisis. When one country experiences economic hardship, a domino effect typically occurs throughout the rest of the group. Subsequently, national economic sovereignty is also partly foregone in joining the union.
Effects of Commodity Speculation
-
Commodity speculation is a finance problem that can greatly affect the financial well-being of countries. Many staples of an economy, such as oil and grains, are subject to market forces. Trading these resources on the open market means the price is subject to rapid price fluctuations. Problems arise when these basic commodities become difficult to procure due to the high price increase. Joachim von Braun and Josette Sheeran, authors of the book, "Responding to the Global Food Crisis: Three Perspectives" states many African countries are particularly sensitive to these price fluctuations: If the price of grains is too high, mass starvation occurs.
Prevention/Solution
-
Avoiding these problems requires maintaining a stable economy. A stable economy is marked by a few traits including a balanced budget, a strong currency that is appealing to foreign investors, a government unmarred by corruption and strong trade activity with other countries.
-
References
- Photo Credit Jupiterimages/Comstock/Getty Images
