Eli5, how can the the Chinese Yuan be cheap when they have a strong economy while Jordanian Dinar is the opposite?
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The Chinese Yuan (RMB) is a special example because of how China manages its currency.
Most other countries (I don’t know about Jordan but I presume this includes Jordan) do not manage the value of their currency. The currency value goes up and down according to the supply and demand in the free market. If people want to buy Jordanian Dinar, then they do, and the value goes up, if they want to sell, then the opposite.
The RMB is different. China actively manages the value of its currency and artificially pegs it to whatever it believes is appropriate relative to the USD. How exactly this works I’m not exactly sure, but the way I assume it works is that the Chinese government directly involves itself in foreign exchange markets, buying and selling currencies to make sure the RMB never gets too valuable (in which case it dumps a load onto the market) or too cheap (in which case it buys a bunch from the market). The government also mandates exchange rates within the country on a daily basis (having been to China I’ve seen this first-hand).
The reason China does this is because China’s economy is almost entirely based on exports. If a country’s exports are too expensive, importers will look for other places to buy. In order to keep China competitive, it has to keep its currency cheap, but not so cheap that its people can’t afford living expenses. Based on the fact that China is the world’s second largest economy, the RMB should not be as cheap as it is, but it is because the Chinese government manages the price.
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