The “unilateral action” in U.S. economic policy and its negative spillover effects present a serious challenge to the reform of the global financial system.
From November 2008 to September 2012, the U.S. Federal Reserve injected a large amount of capital into financial markets, and launched three rounds of quantitative easing (QE).
The Fed has also vowed to keep its target federal funds rate in an ultra-low range of zero to 0.25 percent at least through 2015. All these measures taken by the Fed are aimed at alleviating the credit crunch, stimulating domestic economic growth, and reducing domestic unemployment.
QE has stimulated the U.S. economy to a certain extent, but also produced marked negative effects. The United States has introduced a series of conventional and unconventional ultra-loose monetary policies in the past few years, leading to global excess dollar liquidity.
As trading of international bulk commodities is mostly settled in the U.S. dollar, excess dollar liquidity has inevitably driven up the prices of international bulk commodities, causing inflation on a global scale.
There are two main reasons for the great impact of U.S. domestic economic policy on the world economy.
First, the United States is the world’s largest and most open economy.
Second, it is the issuer of a global reserve currency. The U.S. dollar is the world’s primary reserve and settlement currency, and the U.S. Federal Reserve is the world’s only creator and supplier of dollar liquidity.
This gives the United States a dual identity in the global capital mobility cycle – being both a crisis-maker and a rescuer.
The United States has long relied on the dollar hegemony to support its high consumption, high trade deficit, and high debt by over-issuing the dollar, which has produced serious adverse effects on both the U.S. and world economies.
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