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Two articles worth considering

October 20, 2009

Both from the Economist

Down With The Dollar

ON MARCH 5th an index of the value of the American dollar against six other big currencies touched 89.11, its highest point this year. Since then, however, it has been a steady downward drift for the greenback. On Tuesday October 20th, for example, the dollar index had slipped to 75.24, its lowest point in more than a year.

This hardly constitutes an outright collapse, nor is it necessarily cause for concern. American exporters, whose goods have become more competitive abroad, are happy with their weaker currency. Similarly domestic producers may be cheered that rival, imported goods are more expensive. And European tourists, who can buy more for their euros during weekend shopping excursions to America, may cheer too. However, the continued decline of the dollar does come against a backdrop of ominous murmurs from the likes of China and Russia, who hold much of their reserves in dollars, about the need to shift their reserves out of the greenback. Brazil’s imposition of a 2% levy on portfolio inflows is also a sign that other countries are getting nervous about seeing their currencies rise against the dollar.

Selling foreign goods in China – Impenetrable

Despite widespread hope that China will help pull the world out of recession, foreigners are finding it as arduous as ever to do business there.

(…)

The promise—and frequent disappointment—of doing business in China has been a common theme since at least the 19th century, when weavers in Manchester were said to dream of adding a few inches to every shirttail in China. Thanks to recession at home, foreign firms are keener than ever to capitalise on China’s growth. But Europe and America’s exports to China have remained broadly flat over the past year and amount to less than 7% of the total, even though shrinking exports to other countries flatter the figure. Even if the Chinese economy grows by the official target of 8% this year, the impact on Western firms’ total sales would be little more than a rounding error, says Ronald Schramm, a visiting professor at the Chinese European International Business School.

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