Eli5 Why is the value of the Chinese Yuan small compared to other countries (excluding US) even though it has the second largest economy in the world?
In: 29
The top answers are very good about exchange rates but I’m surprised that no one has hit on a key point about the Yuan, which is that the People’s Bank of China (which is responsible for the monetary policy and for fiscal regulation in China) has purposefully devalued the Yuan in the past. In 2015, the PBOC literally devalued their own currency 3 times rapidly and took off a lot of value compared to the USD. At the time, people were confused as to why a country would devalue their own currency on purpose, but over time it’s become somewhat accepted that by devaluing their own currency they could keep their goods cheap for other countries to buy, even as their economy was growing and their currency was getting stronger. It appears that the fiscal policy makers in China were worried that as the Yuan got stronger their exports would become less affordable for the rest of the world who would seek other suppliers.
Latest Answers