Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Foreign exchange market wikipedia , lookup
Competition (companies) wikipedia , lookup
Fixed exchange-rate system wikipedia , lookup
Bretton Woods system wikipedia , lookup
Exchange rate wikipedia , lookup
Reserve currency wikipedia , lookup
Currency War of 2009–11 wikipedia , lookup
International monetary systems wikipedia , lookup
Welcome to The Economic and Financial Council (ECOFIN) Dear delegates, Welcome to The Economic and Financial Council (ECOFIN) at LVMUN 2015! This year ECOFIN will discuss and debate over agendas of Currency Wars (Competitive Devaluation) and Uniting International Trade with Sustainable Development. With these happening agendas, we expect you to research well and treat this document as an initial start. We are looking forward to meeting you all and experience your knowledge, enthusiasm and MUNing skills. You can revert back to us for any queries. Please join us on Facebook, where you can check updates and meet other delegates until the conference begins- https://www.facebook.com/groups/1573640889587149/ Best wishes, Jan Farfal Paulina Debska James Theuerkauf Head Chair Assistant Chair Assistant Chair 2 TOPIC A: devaluation, especially coins debasement, was widespread before 19th century, it is Currency Wars and hard to talk about the “currency war” as an Competitive Devaluation. international phenomenon during those times, since the volume of international trade remained insignificant. With the A) Introduction With the growing integration of the markets and increasing capital flows, competitive devaluation is becoming increasingly important. Deliberate attempt to lower the value of currency is often associated with inflationary policies aiming to increase local demand, stimulate exports and decrease unemployment levels. Nevertheless currency devaluation can lead to increased prices of foreign goods and the costs of imported products, in turn decreasing living standards. More important however, with increasing trading costs for other countries and increasing costs of stable exchange rates, devaluation policies can provoke other countries to follow the pattern initiating a very subtle line between devaluation policy leading to increased devaluation local that productivity provokes and growing competition which might end up in the currency war. growing integration of the capital markets and increasing capital flows in the second half of the 19th century monetary policies became playing increasingly important role. Nevertheless, the adoption of gold standard system with pegged currency value, by the major economic powers between 1870-1914, diminished the possibility of the currency wars. It was only after world war one, during the times of inter-war instability when the phenomenon of competitive devaluation really originated. With the advent of Great Depression, countries started adopting fiat money policies and devaluating their currencies, that led to the fall of the goldstandard system. Devaluations reached unprecedented levels, affecting the living standards and purchasing power of citizens. Rejection of gold standard system and devaluation of currencies allowed increased money supply, and inflationary policies. Those countries that left gold B) Problem History standard and those still remaining were in Currency wars and currency competitions constant branded as competitive devaluations were maintain their exchange rates. However, a the characteristic that originated in the 20 th believed people’s poverty provoked by century. Although the policy of currency currency competition is much debated. As competition, struggling to 3 Barry Eichengreen summarized: tensions over their monetary policies from ‘In the 1930s, it is true, with one country 2012. after another depreciating its currency, no one ended up gaining competitiveness C) Current State and Case Study relative to anyone else. And no country Since 2012, there has been a heighted succeeded in exporting its way out of the rhetorical conflict between the USA and depression, since there was no one to sell China, additional exports to. But this was not congressmen denouncing China of playing what mattered. What mattered was that an “unfair game” (Nazemroaya, 2014). one country after another moved to loosen And while many economists expected monetary policy because it no longer had currency wars to be over after the end of to worry about defending the exchange the Great Financial Crisis in 2010/2011 rate. And this monetary stimulus, felt (Eichengreen, 2013), the opposite seems to worldwide, was probably the single most be the case. The recent European Central important factor initiating and sustaining Bank’s €1.1 trillion stimulus package may economic recovery.’ (Eichengreen, 2013) again unleash a prolonged period of what Another phase of currency devaluation might be associated with the fall of Bretton-Woods system, when the US dollar pegged currencies started implementing floating exchange rates. In 70’s the competitive pressure originated between US dollar, Deutsche Mark and Swiss Franc. competition The was eased 70’s currency by exchange controls and ‘substitution accounts’. (Salin, 1984) is with known several as United States “beggar-thy- neighbour” economic policy: currency wars and competitive devaluation as they amount to nations trying to gain economic advantages without considerations for the ill-effects they may have on other countries. “This is a war that pits the central banks of the world’s major trading blocs against each other and, as currencies yo- yo in value, creates a nervousness and caution among investors that can stagnation” wrote create The years of Guardian on The period after 2008 financial crisis can January 25. William White, a senior be associated with another currency war. OECD official, furthermore told the Daily USA, China, Japan and European Union Telegraph: “We’re seeing true currency witnessed increased currency devaluation, wars and everybody is doing it, and I have with USA and China facing increased no idea where this is going to end.” 4 Nouriel Roubini, Professor at New York Bank of England, have engaged in since University’s Stern School of Business, in the outbreak of the Great Financial Crisis another piece of The Guardian, wrote that and the bankruptcy of Lehman Brothers almost every country was currently trying (Joyce et al, 2014). to devalue against the dollar and against Yet it is not just the European Central each other (Roubini, 2014). Bank that is heavily devaluing its currency Concretely, the Euro has fallen close through monetary policy. Japan’s Central nearly 20% vis-à-vis the Dollar over the Bank announced in November 2014 that it past seven months. Some analysts (Chen would increase QE asset purchases to and MacDonald, 2015) even expect the $700bn p.a. Euro to fall below $1 in a few months time – in 2014, it was still worth almost $1.40. Fig. 1: JPY/USD Course for the last 12 months with the JPY loosing nearly half its Fig. 1: EUR/USD Course for the last 12 value months with a EUR depreciation of over The devaluation of the Euro and the Yen 30% vis-à-vis the US Dollar will mean that The Eurozone’s of American products will be more expensive an in these countries. Therefore, American unconventional form of monetary policy exports are expected to fall (Romer, 2011). where a Central Bank creates new money In turn, this means that the recovery the electronically to buy financial assets, such American economy currently finds itself in as government bonds, with the aim of may falter, due to the pressure of the high directly increasing private sector spending dollar. What does this imply? Congress in the economy and returning inflation to might put pressure on President Obama to target (Joyce et al, 2011) – could be argued impose tariffs on artificially low-cost to just be a later version, or a response, to imports (Rusbridger, 2015) – but can this the QE that both the United States’ Federal be seen as a solution to currency wars? Reserve, as well as the United Kingdom’s While, as mentioned at the beginning of Quantitative Easing, latest or round QE, – 5 this section, the American Congress has exporters hard, as their products become articulated its anger at China due to its much more expensive. As put by The policy of depreciation, and this may well Telegraph: spill over into disputes with Japan and “The traumatic day in Switzerland has Europe. If the Chairwoman of the US exposed limits of central bank power. It is Federal Reserve, Janet Yellen, were to halt a foretaste of how difficult it is becoming her planned increase in interest rates for countries to resist the tidal force of (Roubini, 2014) in order to stop the dollar devaluation policies and currency warfare from rising, in order to reduce the damage as deflationary forces sweep the world. on American exports… The monetary hegemons are left having to A full- flown currency war could be the consequence. pick their poisons.” Case Study: The Swiss Franc D) Potential Country Blocs “Switzerland ‘capitulates’ on franc as The Eurozone countries, as united by the global currency wars take the next victim”, Euro, are very unlikely to take different writes Ambrose Evans-Pritchard on 15 Jan stances in the General Assembly meeting 2015. The franc surged nearly 30% vis-à- on competitive devaluation and currency vis the Euro in a day, as the Swiss National wars. The stance of non-Eurozone EU Bank (SNB) shocked the financial markets, members is not that clear. Would Japan scrapping the three- year currency floor it join that block? It appears likely, given that had upheld, and freeing the exchange rate. the Japanese Central Bank This came as a response to the QE that was European Central Bank are engaging in announced by the European Central Bank, similar measures. which The would have overwhelmed United States and the and the United Switzerland. Jeremy Cook, from World Kingdom, both of whom engaged in heavy First, said that this retreat was a “total QE early on in 2009, and are now looking capitulation”, clearly invoking the war at increasing interest rates again, seem to vocabulary. “Nobody wins when you stand be on a very similar page. Canada is in the way of a freight train, except the another likely member to join that block. train.” China is a case of its own. While clearly This huge appreciation of the Swiss Franc, engaging in competitive devaluation, the as a consequence of the currency wars rhetoric it has taken has been openly involving the Eurozone, will hit Swiss against it. Where will it join? 6 A series of emerging economies seem to It is important that the committee keeps in make another viable country block, as, mind the mandate of the GA, as well as the among others, limits that it has when coming up with a Raghuram Rajan, the governor of the India’s Central Bank, have resolution, expressed their worry that competitive hardest to find a creative and solutions- devaluations and currency wars will oriented approach to solve the current negatively affect the export and thus crisis. The committee can also, of course, growth potential of emerging nations. The consider the expert advice of other UN LDCs, given that they have very few bodies, such as the IMF and the WTO. while evidently trying its instruments to compete in such a war of the world’s superpowers, are likely to join such a block. E) Question a resolution should address Centrally, a resolution should address how to reduce, prevent, and/or stop competitive devaluations around the world – which rules could be put in place? How can a solution be reached? A clear focus should be to prevent the current currency war from escalating and turning into a global disaster – how can we stop this, without going against the national sovereignty and the independence of Central Banks? When addressing preventing the question of future currency wars, the committee might find it helpful to think about the question of exchange rates more generally, especially how exchange rates can actually strengthen the global economy, and not put it at the hinge of catastrophe. 7 REFERENCES http://www.economist.com/blogs/buttonwo od/2015/02/currency-wars Chen, X., & MacDonald, R. (2015). Measuring the Dollar-Euro Permanent Equilibrium Exchange Rate using the Unobserved Components Model. Journal of International Money and Finance. What's the currency war about? http://www.bbc.co.uk/news/business11608719 Eichengreen, B. (2013). Currency war or international policy coordination?. University of California, Berkeley. Joyce, M., Tong, M., & Woods, R. (2011). The United Kingdom’s quantitative easing policy: design, operation and impact. Bank of England Quarterly Bulletin, 3 (1). Joyce, M., Lasaosa, A., Stevens, I., & Tong, M. (2011). The financial market impact of quantitative easing in the United Kingdom. International Journal of Central Banking, 7(3), 113-161. Nazemroaya, M.D. (2014). From Energy War to Currency War: America’s Attack on the Russian Ruble. Global Research, Centre for Research on Globalization. Romer, D. (2011). Advanced macroeconomics. McGraw-Hill/Irwin. Roubini, N. (2014). Currency wars bode ill for the world economy. The Guardian, 25 January. Rusbridger, A. (2015). Devaluation and discord as the world’s currencies quietly go to war. The Guardian, 25 January. Salin P.(1984) Currency Competition and Monetary Union. Kluwer http://www.bloombergview.com/articles/2 014-12-01/stop-worrying-about-currencywars Eichengreen, B. (2012) Exorbitant Privilege, Princeton University Press Currency wars: Lose-lose or win-win? 8 and TOPIC B: maintain international Uniting International Trade a trade balance and between sustainable development, as well as, develop and and Sustainable Development. modify international trade that would promote sustainable development. A) Introduction B) History topic Since the end of World War II international trade has made huge progress. WTO webpage states that : The liberalization of trade manifested in decreasing barriers and obstacles allowed It is the potential impact of economic achieving unobstructed trading links on the growth and poverty alleviation that makes unprecedented by trade a powerful ally of sustainable globalization the increase in traded goods development. The multilateral trading has been substantial. Between 1970 and system is an important tool to carry 2005 the proportion of world product being forward international efforts aimed at internationally traded increased from one- achieving this goal. The purpose of trade eighth growing liberalization and the WTO’s key principle liberalization has been achieved due to the of non-discrimination is a more efficient decreasing number of tariffs, duties and allocation of resources, which should be taxes with industrialized countries’ tariffs positive on manufactured goods falling from 50% (https://www.wto.org/English/tratop_E/env in 1948 to around 3 .7% in 2005. (Brack, ir_e/sust_dev_e.htm) to level. one-fifth. Facilitated This for the environment. 2005). The importance of international trade in the global development and in However, the history of the promotion of economic terms is unquestionable. Yet it sustainable development by international became visible, that in the process of trade for long encountered growing obstacles, so as it does now. trade liberalization, social numerous development and environmental protection were occasionally ignored for the sake of The pillars for modern-day international increased transfer of manufactured goods. trade regulations were set up in 1947 with Therefore, it is essentially important to nations signing General Agreement on maintain a balance between those aspects Tariffs and Trade (GATT) that aimed to 9 remove trade framework. barriers In 1994 under unified during Uruguay Nevertheless, introduced appointment positive of WTO changes. Poor Round, which was the eight consecutive members of WTO enjoy round of GATT signatories, a decision was differential treatment’ that is expressed in made to set up the body of World Trade longer repayment time, extra leniency and Organization, which started functioning thorough WTO examination in possible from 1 January 1995. Apart from many discriminatory other duties WTO was set up to deal with example, Brazil won a trial against USA the prevailing preambles of sustainable on cotton subsidies unfair treatment, which development resulting from international significantly trade. Violent homogenization of culture competiveness leading to the destruction of separate producers against the American ones. identities and violating cultural sovereignty Another example might be the cast lost by along with of poor European Union on sugar tariffs, which competitive obliged its members to lower the sugar rapid countries to industry were exposure developed two main problems actions. reduced of ‘special and In 2004, disproportion Brazilian for in cotton export rate. (Brack, 2005). associated with trade liberalization. (Brack, 2005). Since the establishment of WTO in 1995, the interplay between international trade The rapid exposure phenomenon led to and sustainable development belief that there was no just balance in the improved, the WTO document states: international countries system, exploiting with their has much developed poorer WTO members recognize that “their counterparts. Developed countries have relations in the field of trade and economic higher industrial tariffs on products from endeavour should be conducted with a developing countries in contrast to other view to raising standards of living, developed states. Although between 1995 ensuring full employment and a large and and 2005 developing countries such as steadily growing volume of real income China, Thailand, Korea and India managed and effective demand, and expanding the to gain noticeable position in the market, production of and trade in goods and other poorer nations suffered from the services, while allowing for the optimal substantially high tariffs aiming to protect use of the world’s resources in accordance their local producers. with the objective of sustainable development, seeking both to protect and 10 preserve the environment and to enhance vast the means for doing so in a manner interconnectedness. consistent with their respective needs and include concerns at different levels of economic integration of rapidly growing emerging development.” market economies. However, on average, https://www.wto.org/English/tratop_E/envi world trade has grown nearly twice as fast r_e/sust_dev_e.htm as world production in recent decades and the expansion trade and Significant liberalization expansion increased consisted factors and mainly the of However, between 1995 and 2010 the will noncommodity exports. This phenomenon of promoting the sustainable development can be derived from the decline in became gradually diminishing. Despite, communication and transportation costs, powerful and very promising declarations, that allowed for fragmentation of the next meetings, next G20 and next climate production process, vertical specialisation forums remained unresolved. in production and subsequently formation of global supply chains across country borders. (Riad et al., 2012) For many C) Current State Trade is the basis for structural economic transformation, which in turn is the foundation of sustainable development. The issue is addressed in the proposed Sustainable Development Goals submitted by the Open Working Group to the General Assembly during its sixty-eight session. Goal ‘strengthening 17 of calls the for means the of implementation and revitalizing the global LDCs and middle level economies, especially those dependent on commodity exports, entering a global value chain is not an easy task, this than prevents changes in trade flows and structural economic changes. That is why a united trading system is needed for sustainable development. Every SDG addresses a wide area, specified in action targets. partnership for sustainable development’ (Open Working Group of the General Universal Multilateral Trading System Assembly, 2014), an important part of that is uniting trade to provide an integrated universal framework enabling countries to enter the global value chains. Recent global trade patterns are characterized by ‘17.10 Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organization, including through the conclusion of negotiations 11 under its Doha Development Agenda’ Committee on LDCs, 2014) The number of (OWG GA, 2014) importing countries was small, which made LDCs vulnerable to external shocks. The Multilateral Trading Order is a In this situation structural transformation is framework, established by the World crucial, where economies diversify to Trade higher Organization, aimed at trade productivity and value-added regulation and liberalization. It unites sectors, as well as broaden their export global trade and provides a forum for partners base. However equal attention has negotiations. The organization is currently to be paid to product and partners trying to complete the Doha Development diversification, as recent trends show that Round of trade negotiations, its aim is to the growth of the share of developing achieve major reform of the international countries in export destinations, at the trading system through the introduction of same time focuses mainly on products lower trade barriers and revised trade rules form low- value-added sectors. (Ancharaz as well as make the international system & Pfister, 2013) more inclusive in face of rapid globalisation. At the end of 2013 WTO Facilitating LDCs Market Access agreed by consensus on the Bali Package, an agreement lowering global trade barriers. ‘17.12 Realize timely implementation of duty-free and quota-free market access on a lasting basis for all least developed Developing Countries Exports countries, consistent with World Trade Organization decisions, including by ‘17.11 Significantly increase the exports of ensuring that preferential rules of origin developing countries, in particular with a applicable to imports from least developed view to doubling the least developed countries are transparent and simple, and countries’ share of global exports by 2020’ contribute to facilitating market access’ (OWG GA, 2014) (OWG GA, 2014) In 2013 the total share of LDC trade Duty- free and quota- free market access for remained marginal at around 1.23% of the LDCs is on the agenda since 1996 and world’s total, trade deficit grew as imports during those nineteen years much has been increased more than exports, that where done. concentrated only in several sectors. (Sub- Ministerial Declaration it was agreed by In 2005 in the Hong Kong 12 the WTO member states that developedcountry Members, and developing-country SDG 17 is a part of a universal agenda, Members aimed declaring themselves in a at integrating the sustainable position to do so, agree to implement duty- development objectives into all areas of free and quota- free market access for at international least 97 per cent of products originating institutional force so it is up to other UN from LDCs by 2008. These commitments bodies to act on the provisions and where reiterated in the 2013 Bali Package. implement appropriate policies. regimes, that has no However there still remains the problem of the 3%, part of the developed countries D) Potential Country Blocs refuses to provide LDCs with full market The access. Additionally many of the excluded consideration countries economic positions products are subsidised by the countries and interests is the distinction between governments, what makes it even harder developed countries, developing countries for LDCs to enter those markets (e.g. and least developed countries (LDCs). agricultural products). The Hong Kong Within Ministerial Declaration also states that subsequent divisions can be recognized, on ‘Members shall take additional measures different basis like the size of the economy to provide effective market access, …, (e.g. including simplified and transparent rules forums like G8, G-20 or G33 are also of origin so as to facilitate exports from worth acknowledging as some of them LDCs’ Rules of origin specify the amount often of local procedure needed for goods to be coordinate on trade issues. recognized as products of the exporting also pay attention to the significance of country. If they are too restrictive or regional trading blocks (e.g. EU, NAFTA) unclear it prevents LDCs from exercising as they have a big impact on the global the market access preference. (Bridges, trade patterns. Their formation leads to 2013). The Decision on Preferential Rules trade creation between members and trade of Origin for the LDCs, adopted at the 9th diversion externally. The member states Ministerial Conference in Bali, defined a have to coordinate their trade policies to set of guidelines for countries to use when some extent and depending on the level of formulating their legislation on the subject. integration may exercise common strategy However it is only a non-binding proposed towards outside partners. basic division, those three taking major BRICS).Economic share economic in to groups governmental interests or One should framework. 13 E) Issues for discussion and REFERENCES possible Resolution Open Working Group of the General In the discussion and resulting from it Assembly (2014). Report of the Open resolution you should try to find creative Working Group of the General Assembly solutions to problems of enabling countries on to enter global value chains, increasing (A/68/970). United Nations. LDCs exports and enforcement Sustainable Development Goals of standards as well as try to answer Riad, N., Errico, L., Henn, C., Saborowski, questions on how to make the multilateral C., trading system more efficient and inclusive Changing while overcoming obstacles posed by International Monetary Fund. Saito, M., Turunen, J. (2012). Patterns of Global Trade. national interests. Try to focus on behindthe-border measures and think about how The Doha Round. Retrieved March 13, governments 2015, could possibly through from negotiations influence private sectors. https://www.wto.org/english/tratop_e/dda_ Remember that a resolution requires the e/dda_e.htm usage of appropriate language and that when adopted by ECOFIN it is not Sub-Committee on enforceable. Countries (2015). Least-Developed Market Access for Products and Services of Export Interest to Least-Developed Countries. World Trade Organization. Ancharaz, V., Pfister, A. (2013). Trade as a compass for LDCs structural transformation. Bridges Africa vol. 2 nr 2. Doha Work Programme Ministerial (WT/MIN(05)/DEC). (2005). Declaration World Trade Organization. 14 Ministerial Decision (2013). Duty-free and Quota-free (DFQF) Market Access for Least Developed (WT/MIN(13)/W/16). Countries World Trade Briefing (2013). Organization. Bridges Negotiation Bridges Negotiation Briefing #5, LDC Issues: Poor Countries Look for Progress in Bali. Bridges, vol. 17 nr 40 Joseph E. Stiglitz and Andrew Charlton, Fair Trade for All – How Trade Can Promote Development (Oxford University Press, 2005). Third World Network, Trade Issues/Rules and WTO: www.twnside.org.sg/trade.htm. http://trade.ec.europa.eu/doclib/docs/2013/ july/tradoc_151626.pdf The World Trade Organization and sustainable development: A guide to the debate https://www.chathamhouse.org/sites/files/c hathamhouse/public/Research/Energy,%20 Environment%20and%20Development/dec 05wto.pd 15 16