Developing Economies Struggle with a New Global World
The paper focuses on the effects of reduced purchase of bonds by the American Federal Reserve on five major developing economies. The monetary value of Turkey, Indonesia, Brazil, India and South Africa has been constantly witnessing a drop for almost seven months last year. Indonesia and Brazil stabilized the value of their currencies but the other three economies are still struggling to stabilize theirs.
The Federal reduced its bond purchases in December 2013, by about ten billion dollars and it also did the same in January 2014. Central banks within these economies have therefore had to strategize as a way of maintaining their value currency and to survive. Such fluctuations have also continued to cause turmoil for the market and for global economy (Locus of Extremity 1-13).
Bond purchases are also essential for growth of different industries especially in developing countries. For instance, vital exportation and importation of goods and services will be affected adversely by currency value fluctuation in different states. Rich and growing economies need each other for survival. The idea of outsourcing as well as globalization has additionally enabled countries to make themselves dispensable however small they are.
In many occasions, international trade has been the solution to scarcity of resources especially where economies share resources with each other and on agreeable grounds. The move by American Federal Reserve to cut on bond purchases abruptly will instantly affect international trade with growing economies as well as with the rest of the world as countries focus on their resources as a way of maximizing on internal income (Locus of Extremity 1-13).
The impact of the move will eventually spill to other industries and it is an issue that can cause economic turmoil across the globe.
“Locus of extremity: developing economies struggle to cope with a new world”. The economist 1 February 2014:1-13. Print.