One website on facebook was ranting that we should stop buying made in china products because they were manipulating their currency.
How can a governemtn artificially devalue a currency?
the group blamed this for the US trade deficit
US government is doing it by printing dollars. Chinese goernment is doing it by printing yuans of course.
The tactics is known as: “beggar thy neighbour”
http://en.wikipedia.org/wiki/Beggar_thy_neighbour
The problem is it’s a game in which all lose at the end.
China’s government is inflating its own money to keep pace with the inflating dollar.
In effect, the USA is exporting its inflation to China.
This isn’t free. The cost is paid as money supply inflation for people living in China. China keeps stable exchange rates, but people living in China experience inflation.
In effect, China is inflating its own money to subsidize the profits of the banksters on Wall Street.
I never understood how “Export tangible goods to the USA in exchange for a piece of paper.” is a good deal for China.
I suppose they figured that this is a small price to pay for the economic growth.
The Chinese central bank rapidly sells Yuans and buys other key currencies, including the Yen, Pound, Euro, and of course, the USD.
They are getting more than just pieces of paper. They are building infrastructure and a large manufacturing sector, which is what the Chinese government has always wanted. It’s what they tried and failed to achieve under communism. If all those dollars drop to zero value tomorrow the Chinese will still have the capital assets they have built under the current trade regime.
But they haven’t built that with the dollars that went out of the country… That money baught only IOUs from U.S. government. In other words, if there were no such surplus in trade, Chinese would still live the same standard and would have what they have now. The country’s capital is built from induced savings of Chinese people.
That article is full of shit.
Receiving dollars doesn’t cause economic growth. What China is receiving from the west that’s causing prosperity is the talent to build the factories.
The manipulation of exchange rate transfers wealth away from chinese workers in order to encourage foreign investment.
They do it mainly by buying US government securities! They are effectively subsidizing our debt. How about blaming the government for its deficit financing as the main cause of the trade deficit? Or we can just blame the Chinese for being suckers?
It also doesn’t help that since China owns so much US debt that if the dollar were to fall in value their investment’s value would fall accordingly. Perception being as powerful a market mover as it is, if China were to let the yuan become scarce and if the dollar goes south, all that money is “wasted” because the US has no qualms printing money and China is aware of that. If China moves away then it might create a bit of a run on the greenback in a sense, causing it to really tank. If you’re the type of person who thinks that printing boosts the economy and inflation isn’t that big of a deal, then it makes sense for China to keep their currency where it is compared to their biggest investment.
There are lots of reasons China is doing it, but for the most part it boils down to the fact that every other country is also debasing their own currency and if you believe what everyone else does, this move actually makes sense.