One of the main sources of imbalances in the world economy are the countries who aggressively pursue a policy of becoming and remaining net exporters. These include countries such as Germany and China.
With floating exchange rates net exporting will eventually lead to an appreciation in the exchange rate, which by changing relative costs of exports and imports will reduce the surplus. Sometimes countries determined to remain net exporters try to prevent exchange rate appreciation by keeping the money that they received in payment for their goods in the importing countries. That is a self-defeating policy since it means that people in exporting countries are working hard to producing goods, sending them off to other countries, and receiving no real benefit in return other than a financial claim. All they have is some money in the importing country, but what use is that? It would make more sense for them to get something in return from those countries, such as imports of goods. In modern fiat currency systems exports are only of any real benefit if the proceeds are use to purchase imports. Countries that are net exporters are working hard and exporting the benefits.
If net exports are a cost, why do so many countries pursue net export policies? The short answer is the IMF. This organisation was set up to help countries that were temporarily short of the foreign currency reserves they need to purchase essential imports or pay back loans. When countries have run into problem in the past the IMF has lent them money under very strict conditions, which include a requirement that government sacrifice control over the budgets and impose austerity on their economies. Bitter experience of the hardship and humiliation that this resulted in has meant that many countries are determined to avoid ever having to seek help from the IMF ever again by building up large foreign exchange reserves. This is best achieved by being a net exporter and not repatriating earning from imports, building up large foreign currency reserves.
Other countries like to be net exporters because they believe it is prudent for both the private sector and the government sector to be in surplus, and this is only possible if they are net exporters. Germany is good example of this. Germany works very hard at maintaining its net exports by suppressing wage increase amongst its workers which keeps imports down by suppressing domestic consumption. Ironically it is the German people that stand to lose the most from this policy of aggressive net exporting since they are effectively creating things that other countries are using in return for a financial claim which will become worth less or even worthless as their currency appreciates or the importers default on these debt. Not so clever.
With floating exchange rates net exporting will eventually lead to an appreciation in the exchange rate, which by changing relative costs of exports and imports will reduce the surplus. Sometimes countries determined to remain net exporters try to prevent exchange rate appreciation by keeping the money that they received in payment for their goods in the importing countries. That is a self-defeating policy since it means that people in exporting countries are working hard to producing goods, sending them off to other countries, and receiving no real benefit in return other than a financial claim. All they have is some money in the importing country, but what use is that? It would make more sense for them to get something in return from those countries, such as imports of goods. In modern fiat currency systems exports are only of any real benefit if the proceeds are use to purchase imports. Countries that are net exporters are working hard and exporting the benefits.
If net exports are a cost, why do so many countries pursue net export policies? The short answer is the IMF. This organisation was set up to help countries that were temporarily short of the foreign currency reserves they need to purchase essential imports or pay back loans. When countries have run into problem in the past the IMF has lent them money under very strict conditions, which include a requirement that government sacrifice control over the budgets and impose austerity on their economies. Bitter experience of the hardship and humiliation that this resulted in has meant that many countries are determined to avoid ever having to seek help from the IMF ever again by building up large foreign exchange reserves. This is best achieved by being a net exporter and not repatriating earning from imports, building up large foreign currency reserves.
Other countries like to be net exporters because they believe it is prudent for both the private sector and the government sector to be in surplus, and this is only possible if they are net exporters. Germany is good example of this. Germany works very hard at maintaining its net exports by suppressing wage increase amongst its workers which keeps imports down by suppressing domestic consumption. Ironically it is the German people that stand to lose the most from this policy of aggressive net exporting since they are effectively creating things that other countries are using in return for a financial claim which will become worth less or even worthless as their currency appreciates or the importers default on these debt. Not so clever.
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