China’s volatile exchange rate is leading us towards a tipping point


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The Chinese government has been devaluing the yuan, despite promises to keep its exchange rate stable. Provisional figures have shown that a net $34 billion worth of foreign bonds were purchased in June. This has undermined the People’s Bank of China’s (PBOC) credibility. There is concern that devaluation as a form of simulating the Chinese economy will cause global inflationary pressure to continue falling, damaging an already weak global economy. Devaluation of the yuan has also been followed with criticism from the US.

How does this relate to the HSC syllabus?

  • China’s economy is currently experiencing low growth. Devaluation of its currency may boost growth in the short term as its exports become more internationally competitive (HSC Topic 2 – Australia in the Global Economy). Since exports is a factor in aggregate demand (AD = C + I + G + X – M), an increase in exports due to increased international competitiveness would lead to an increase in aggregate demand, leading to an increase in economic growth.
  • The expenditure of $34 billion on foreign bonds may be a signal that PBOC is intervening in currency markets. Buying foreign bonds requires the sale of yuan in the market, causing an increase in supply of Chinese yuan, resulting in a depreciation (HSC Topic 2 – Australia in the Global Economy).
  • Although devaluing the currency may support growth in the short term, it may damage the economy in the long term. Firstly, it is damaging its relationship with the US which may deteriorate its trade opportunities. Secondly, it is stalling the need to undergo microeconomic reform in the face of rising labour costs and slowing productivity growth. Therefore, short term growth may need to be compromised to ensure growth in the future.
  • Since the global economy sources most of its imports from China, a depreciated yuan would mean that the price of goods and services in general would be lower. A lower price level entails lower inflationary pressures, leading to low inflation or even deflation (HSC Topic 3 – Economic Issues).

Australia seeks new trade deal with UK, says Boris Johnson


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The UK’s Foreign Secretary, Boris Johnson, has commented that India and Australia are among the countries that have discussed the possibility of establishing new trade agreements with the UK after the decision to leave the EU last month. In the next few days, the new prime minister, Theresa May, is leading discussion in the EU to emphasise the strategic importance of the UK to the EU.

How does this relate to the HSC syllabus?

  • A Brexit would mean that the UK would need to renegotiate all of its current trade agreements with the EU and the global economy as it cannot take advantage of the agreements the EU had with the rest of the world anymore. Among the economies to consider negotiating these agreements are India and Australia to lower trade barriers between each country and ensure strong trade relationships in the new economic environment (HSC Topic 1 – The Global Economy).
  • While an intention to form these trade agreements has been evinced, they may take longer to conclude as each economy would be trying to negotiate terms that are in its best interest which may be detrimental to the other economy.

Africa’s charcoal economy is booming, but the trees are paying


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Mining and selling charcoal has become one of the biggest drivers of Africa’s economic growth over the last few years. Africa’s charcoal production has doubled over the past twenty years and now accounts for 60% of the world’s total. However, the booming mining business has come at a cost of environmental degradation due to deforestation and exacerbation of the effects of climate change.

How does this relate to the HSC syllabus?

  • Growth in the use and demand of charcoal has led to depletion of trees. Although trees are a renewable resource, they are being used more quickly than they are being replenished, causing depletion. Furthermore, burning of charcoal causes the release of carbon into the atmosphere, contributing to climate change (HSC Topic 3 – Economic Issues).
  • Africa is failing to achieve ecologically sustainable development (HSC Topic 3 – Economic Issues). On its current trajectory, its forests will be severely degraded in the next 30 years as a result of strong charcoal demand currently and lack of policies to control production. Therefore, the demands of the future generation will be compromised as a result of meeting present demand.
  • Africa’s strong growth and environmental protection path may follow the environment Kuznets curve. Since Africa is still a developing country, its priority is economic growth while compromising environmental sustainability. However, as its income increases, Africa will start becoming more conscious of the environmental damage it is causing and implement policies to preserve the environment while achieving moderate growth.

Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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