Wednesday, November 10, 2010

Its just fiat money

  Macroeconomics is not like micromanagement. A country only gets paid in domestic currency for the production and consumption of goods. Thus legal tender in Europe is in Euros, and legal tender in China is in RMB. Foreign currency has no value in a country that does not use that legal tender. Thus it needs to be exchanged in the foreign exchange market before it can be used to for the production and consumption of goods inside a country.

  Still, in regards to FDI, the united states has a negative investment position with the world. Meaning more foreign countries send fiat money to invest in the united states than does the united states invests abroad.


"U.S. Net International Investment Position at Yearend 2009
      
        The U.S. net international investment position at yearend 2009 
was-$2,737.8 billion (preliminary), as the value of foreign investments 
in the United States continued to exceed the value of U.S. investments
abroad (table1).  At yearend 2008, the U.S. net international investment
position was-$3,493.9 billion (revised)".
 
 
 The united states only invests 3 billion dollars a year into China. Which is 
largely a trivial amount. While the negative investment position in the us 
stands at over 2.3 trillion dollars. Countries like Singapore and Japan invests 
more into China than the united states annually. 
 
 
 
  "US FDI in China is surprisingly small relative to nearly any relevant benchmark. US firms account for a small component of total FDI inflows into China. US affiliates have contributed very little to Chinese fixed asset investment or employment growth.3 Moreover, in 2004 the Chinese operations of US firms accounted for only 1.9% of total foreign affiliate sales and 0.7% of total foreign affiliate assets".
 
Country/Region of Origin Amount Invested 2008
($ billion)
Amount Invested 2009
($ billion)

 
Hong Kong 41.0 54.0
Taiwan 1.9 6.6
Japan 3.7 4.1
Singapore 4.4 3.9
United States 2.9 3.6
South Korea 3.1 2.7

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