Eli5, how can the the Chinese Yuan be cheap when they have a strong economy while Jordanian Dinar is the opposite?
In: 19
The regulators overseeing the Chinese Yuan have a huge incentive to keep the value of the Yuan compared to reserve currencies, like the USD and Euro, artificially low. This is because China’s economy is almost entirely built off of exports, and they have to keep the exchange rates low to maintain their “factory of the world” title. If their currency strengthened too much, manufacturers would look to move to countries like Vietnam, India, or Mexico.
So, the question is how do they manipulate their currency values. And it comes down to what the Chinese regulators do in order to increase the demand/reduce supply of reserve currencies (USD, Euro) while lowering demand/increasing supply of the CYN. To simplify it, they spend their export profits on buying USD and Euro denominated investments. Things like US treasury bonds or other US/European assets.
China has been accused of currency manipulation going back to the Obama era. That was also when people started talking about China “owning” the US as they became one of the largest foreign holders of US government debt. Those two go hand in hand and China didn’t really have much of a choice in the matter. The massive trade imbalance between China and the US meant that China had to buy those bonds or see the CYN skyrocket against the USD which would have wrecked their economy.
Latest Answers