Options for China in a Dollar Standard World a Sovereign Currency Approach
Why China Manipulates Its Currency
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WHY MANIPULATES THE YUAN CHINA
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Over the last few years, economists have talked a lot about China's currency manipulation. Using simple terms and informative charts, this presentation explains how and why the world's second largest economy does so.
Transcript of Why China Manipulates Its Currency
WHY
MANIPULATESTHE YUAN
CHINA
China is a CURRENCY MANIPULATOR.
This isn’t an INDICTMENT.
It’s a FACT.
1970 1975 1980 1985 1990 1995 2000 2005 2010
Here’s the real
PURCHASING POWERof the Yuan vs. the Dollar…
Source: Federal Reserve
1970 1975 1980 1985 1990 1995 2000 2005 2010
See how it’s gone DOWN?
Source: Federal Reserve
This isn’t a
MISTAKE
Over the last 4 decades, China has
INTENTIONALLY DEVALUED the Yuan
Its central bank PRINTS YUAN.
Then uses it to BUY U.S. DOLLARS.
This increases the SUPPLY of Yuan in currency markets...
(which DECREASES the price of a Yuan.)
…and increases the DEMAND for U.S. Dollars.
(which INCREASES the price of a Dollar.)
This means that China owns
A LOT OF DOLLARS
1981 1986 1991 1996 2001 2006 2011
Here are China’s foreign currency reserves…
Source: Federal Reserve
1981 1986 1991 1996 2001 2006 2011
They’ve gone from $5 billion in 1981 to $3.8 trillion today!
$5 billio
n
$3.8 trillio
n
Source: Federal Reserve
In the process, China has become the world’s
largest holder of foreign exchange reserves.
By a LONG WAY…
Russia
Switzerland
Saudi Arabia
Eurozone
Japan
China
$510 Billion
$536 Billion
$727 Billion
$772 Billion
$1,277 Billion
$3,820 Billion
Source: Wikipedia
Foreign Exchange Reserves
Why
does
China do
this???
China’s economy is
based on EXPORTS.
And it sells more exports if the
Yuan is cheap.
It’s the reason you
can buy a Teenage
Mutant Ninja Turtles
“Combat Shell” for
only $11.39 from
Target.* *This example is provided for illustrative purposes only. Source: Target.com
Which is a good deal
when you consider…
It looks “just like a Ninja Turtle’s shell.”
And showcases your “fiercest ninja moves.”
Has room to fit “ninja combat gear weapons.”
Source: Target.com
An artifi cially cheap Yuan
is also one of the main
reasons that China’s GDP
has done this…
1960 1970 1980 1990 2000 2010
$61 billio
n
$7.3 trillio
n
Source: Federal Reserve
China’s GDP in current U.S. dollars…
So, why does China
manipulate the Yuan?
It does so to
BOOST EXPORTS.
Which, in turn,
FUELS ECONOMIC GROWTH.
It’s really as simple as that!
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topple China’s manufacturing monopoly and make the world’s smartest investors RIDICULOUSLY RICH.
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Techin24/iStock/Thinkstock
Liang Zhang/iStock/Thinkstock
Nebojza/iStock/Thinkstock
SeanPavonePhoto/iStock/Thinkstock
Henry Gan/Photodisc/Thinkstock
Photo credits…
