Thursday, August 30, 2018

IB Economics HL (and SL): Two interesting articles on International Economics for Year 2 candidates

I am enjoying the last few days of my summer vacation reading articles from several news sources (not fake at all, IMO...).  Two of these I would like to share with my Year 2 students as they relate to the material we will be covering this fall.

The first one is Argentina, Combating Plummeting Currency, Raises Interest Rate to 60% from the New York Times. The first paragraph clearly explains the issue:
Argentina’s central bank ramped up interest rates by 15 percentage points on Thursday in a bid to slow the fall of its plunging peso, part of a sell-off among emerging market currencies.  (I like the use of 'ramped up!)
The Peso is depreciating rapidly (making imports much pricier and thus feeding inflationary pressures as a result of 'fears the country would not be able to make its debt payments'.  These fears explain the 'sell-off' mentioned above. 

What is also a driving force behind the depreciation of the Argentinian Peso, the Turkish Lira and the South African Rand is that the Chairman of the US Fed (the US central bank) has credibly signaled that the US is sticking to its decision (see Fed's Powell Just Wants to Be Understood) to increase interest rates (which makes US bonds and dollar deposits more attractive to financial investors): Pesos, Liras and Rands are sold, to buy US dollars, driving the value of the dollar up and the value of these currencies down.  Add to this the debt issues Argentina is facing and the unwillingness of Turkey to tighten monetary policy and you get the plummeting currencies.  A pretty typical story for the currencies of emerging economies.

The second article, again from the New York Times, is E.U. Says It’s Ready to Abolish Car Tariffs, Shifting Position.  Quoting:
Cecilia Malmstrom, the European commissioner for trade, told members of the European Parliament that the bloc was willing to reduce “car tariffs to zero, all tariffs to zero, if the U.S. does the same.”
“It has to be reciprocal,” she said. “We would do it, if they do it. That remains to be seen.”
This is an interesting development for many reasons.  It may be interpreted as a winner for US President Trump and his aggressive policy stance ('...may please the Trump administration').  But is also forces the US to play by the EU's bold proposal: will the US auto industry be able to thrive in an zero car tariff world?  We'll see how this one plays out.

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