eli5: What does it mean by the state ‘artificially maintaining a currency’?
In: 5
Could mean various things. In this case probably referring to monetary policy specifically regarding rates which can strengthen or weaken a currency. Aiming for lower inflation as well as low inflation strengthens a currency. Banning short selling of the currency can temporarily prop a currency up too.
Most currencies are floated on the market. That means that their value is decided by people buying and selling the currency using other currencies. If people are generally trading 120 Japanese Yen for 1 US Dollar, then that’s the exchange rate for Yen to Dollars.
A government can put their finger on the scale, if desired, by also engaging in this trade. Say the Japanese government wants to strengthen the Yen against the Dollar. They may put a standing offer to sell 1 US Dollar for 110 Yen. This influences the market, because people who have Yen but want Dollars can go to the Japanese government to exchange 110 Yen per Dollar, as opposed to the market rate of 120 Yen per Dollar, saving 10 Yen for each transaction. So long as the Japanese government offers this rate (and has the US Dollars to pay for the trades), then the exchange rate will move towards 110 Yen per Dollar instead of 120 Yen per Dollar as it was before.
Pick any single measurement for how a person is doing financially. Bank account balance, size of their house, how old their car is, how much jewellery they have, their 401k balance. Any single indicator is open to being manipulated by actions that don’t make financial sense except to influence that indicator.
For example you could take a cash advance on your credit card to boost your bank account balance.
Why would you do that? If ppl are following your account balance and making other choices about you based on it.
Russia is doing something similar and using complex financial steps to boost its currency. But like a credit card cash advance all these steps are very, very, very bad financial choices.
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