Economics Second Paper

Economics Second Paper

Introduction

This essay is based on discussing the current policy of a country on its exchange rates along with demonstrating a sound understanding of various policy recommendations and role of exchange rates and dollarization in times of the global financial systems. In such a context, we chose the country of the United States. Assuming the role of an economic consultant to the Central Bank of the United States, we will look into various economic concepts in depth, considering various facets of the financial policies and approaches implemented within the chosen economy.

Over the period of time, America and Europe have realized that their “say” in the functionalities of private banks could improvement the entire banking sector with a forceful approach. Central banks, therefore, are viewed as being trust-worthy in these two economies since they assist in making important financial decisions for the governments. In 1913, the Federal Reserve emerged to be the central bank of the United States (Zaheer & Kostova, 1999). Today, it has been a strong agent in catalyzing financial reporting and regulations across the United States. Using its supply of money or bonds' selling, the Federal Reserve handles the stability of the value of American currency; trying not to causes radical “highs and lows” in its worth. The central bank supervises all the banks of the U.S., disburses currency to them and makes necessary adjustments in the interest rates in order to prevent prices from rising any further. Though the Federal Reserve is primarily based in Washington, its headquarters being there, still the bank holds many branches in other cities of the U.S.

Discussion

United State's Current Policy on Exchange Rates

U.S. Foreign Exchange (FX) interventions have long remained debatable; some say the role is an active one, while others seem to raise doubts on its efficacy in the literal sense. It has been witnessed that the monetary authorities of the United States have occasionally intervened in the foreign exchange markets to observe the trends of disorderliness in the market conditions. The U.S. exchange rate policy has been set up by the Treasury in coordination with the Federal Reserve System. On the other hand, the Federal Reserve Bank in New York looks after the intervention in FX markets on the behalf of the central bank of the U.S. However, in recent years, these interventions have been less rapid than previous some time (Wheeler et.al, 1998).

Preparation of Reports: Being one of the core objectives of the policy, the U.S. Treasury provides information relating to the discussions held with financial forums in their regulation of FX. An example can be its detailed discussion with the G-7 countries and its bilateral surveillance in accordance with the policies of the International Monetary Fund (IMF). It makes necessary interventions especially in cases such as the reluctance of the EU to force China for a possible revaluation prior to the year 2007. The Treasury also foresees any overvaluation that may take place, since it can plague the economy of the ...