When international investors lost confidence in the ability of governments to defend the fixed exchange rate, the countries encountered difficulties. Sharp currency depreciations and major readjustments followed in many countries. Even though economies in this region have fared well in recent years, the experience may have left its mark. A number of Asian countries, China in particular, have chosen to keep their currencies pegged to the US dollar. As long as the Chinese authorities are successful in keeping the exchange rate fairly fixed, competitiveness and a trade surplus will be maintained. However,  3  2  US Bureau of Labor Statistics. International Labor Comparisons. Manufacturing in China. http://www.bls.gov/fls/china.htm  BIS central bankers’ speeches  such a policy is at the expense of deficit countries, which would have preferred to see an adjustment in the yuan exchange rate. China’s exchange rate policy is therefore under strong pressure, especially from the US. But China’s economic strategy is based on its own experience and the experience of others. First, China has chosen to focus on the export of finished manufactured goods rather than domestic consumption as the basis for growth. So far, this has resulted in dynamic developments where growth has been kept high owing to increasing opportunities for people in rural areas to move to new jobs in towns and cities. A stable exchange rate has contributed to predictable operating parameters for a rapidly growing export industry and has held up competitiveness.
In the same period they accounted for 80 per cent of growth in global consumption of agricultural products and virtually all of the increase in global metal consumption. While demand for energy and commodities is rising, there are supply-side constraints. With regard to oil, the large and easily accessible deposits were extracted first, and new finds are smaller and more expensive to extract. The same applies to a number of metals. Investment  4  BIS central bankers’ speeches  in the energy and commodity sector has also been low. Energy prices have risen fairly markedly over a lengthy period, with some temporary disturbances. Agriculture is facing some of the same challenges. Productivity growth in this sector has declined in recent years. In order to increase production, farmers have had to use less fertile land and the costs of food production have risen. Agricultural production has also become more energy-intensive and energy and food prices have become more closely linked. Energy now accounts for a third of the cost of grain production. In addition, with high oil prices, demand has shifted towards biofuels, with inputs such as maize and sugar. In 2010, 40 per cent of maize production in the US was used to produce biofuel. A large share of sugar production in Brazil is used for the same purpose. As we have seen in recent years, the rise in energy prices is spreading to food prices4.