Well... a positive (or negative, as we have) balance from international trade is one thing.
While, what a country *does* with that positive balance (or how they 'fund' their negative balance, the steady losses from unbalanced books) are a different issue.
Countries with very large and growing positive cash-flow from international trade (China, Japan, oil exporters - mostly in the Middle East and Russia, etc.) have many options for what to do with the accumulating cash... but if they do not choose to 'sterilize' the cash flow --- by reinvesting in the same or related currencies that they are piling up in their trade balances, the imbalance will tend to put pressure on their own sovereign currency to rise in value (naturally enough: because they are gaining wealth through their trade, while the guy on the losing end of the stick is bleeding wealth out).
This is a problem with 'pegged' currencies that are not allowed to free-float.
Normally in such circumstances, the positive balance from trade flow would have to be reinvested in the same currency it flowed from --- if a peg to that currency was to be maintained. (And usually, sovereign-issued debt has been the sterilizing investment of choice, government-to-government.)
But, that need not be the only choice!
As China and South Korea (& Japan and Middle Eastern countries, etc.) are beginning to increasingly do, they can reinvest in real assets (denominated in that same target currency), property, companies, natural resources in the ground, infrastructure, non-sovereign debt, etc.
Problem is that the trade balances that are piling up are so large that they can quickly have a large distorting effect upon the prices of these assets. So, eventually, it becomes more logical to raise the 'peg' (perhaps over and over... until free float is achieved) and choose to invest those trade balances in one's OWN COUNTRY --- thus very RAPIDLY increasing the wealth of your citizens.
For example, oil is priced in Dollars. China - soon to be the world's largest importer of oil - must currently pay for oil with dollars. (Of which they currently have plenty. :-)
But, what if they allowed their currency to free float, and it doubled in value to the dollar? Even if they then had to exchange some Yuan for dollars (or Euros) to buy the same amount of oil --- their COST for oil would have just been sliced in half. A huge stimulus for their economy. |
