“China pegs the value of the yuan to the US dollar. By stockpiling dollars it raises the dollar value versus the yuan thereby increasing sales by making Chinese exports cheaper than American-made goods.” But why exactly does stockpiling dollars raise the dollar value versus the yuan? Why does it make the yuan less?
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They buy USD using RMB. This drives up the demand for USD, increasing its value, while simultaneously devaluing the RMB, as the supply of it on the market is increasing.
If they didn’t stockpile the USD (ie, they just sold it later), then the supply of USD on the market would go back to where it was before they bought the USD.
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