It's been one of Trump's favorite
accusations toward other nations.
Currency manipulation.
A currency manipulator.
China is a currency manipulator.
But how can banknotes
like these, be manipulated?
Let's break it down.
One example of currency manipulation
is what a country might do when
it wants to minimize the effects of
having a strong currency.
Let's say for example,
that one U.S. dollar is equal to ten
dollars in the Republic of Monopoly
and with ten Monopoly dollars,
I can buy one cup of coffee
from the United States.
Now imagine that gradually inside the
Republic of Monopoly, the economy starts
doing very well and is extremely stable.
The currency naturally could rise
against all other currencies.
So now that one U.S. dollar only
earns you eight Monopoly dollars
instead of ten.
For me to buy that same cup of coffee
from the United States,
I only need to pay eight
Monopoly dollars.
So, it's cheaper for me.
So, this currency has become more valuable.
My citizens have more spending
power when they travel abroad and as a
country we have more buying power
when I want to import goods.
So, what's the problem?
Why manipulate?
Say I want to sell muffins to the U.S.
Instead of the U.S. paying me
one dollar like it used to,
it would now cost them $1.20,
all because my economy was
stronger and my currency is doing well.
No real change in taxes or monetary policy
and if I'm a large exporter and
shipping out more goods than I'm
bringing in, like China, this makes my
goods much less competitive.
In fact, you might even begin
buying from another country.
Hence, the urge to manipulate.
There is a number of other reasons a country
might choose to do this besides maintaining
competitiveness, including wanting to control
inflation or just maintain its
own financial stability.
China, is of course one of the most targeted
countries for currency manipulation.
When it devalues its currency,
it essentially wants to keep the cost of all
its goods and services less expensive
than other countries.
It's the world's second-biggest economy
after the U.S. but according to experts,
it actually hasn't been pushing down its currency
to benefit Chinese exporters
in years and even if it were,
there's a law which
requires the U.S. to spend a year
negotiating a solution before
it can retaliate.
President Trump recently backtracked
on his initial stance of
labeling China as a currency manipulator
but his accusations aren't
completely unfounded.
In 1994, the U.S. branded China
a currency manipulator.
Under the law, though labeling a country
as such can trigger an investigation
and require negotiations on
tariffs and trade.
China's yuan is becoming more
influential on the global scale.
It was recently added to the International
Monetary Fund's basket of reserve
currencies which are currencies deemed
safe, reliable, and freely used.
Joining the U.S. dollar, the euro, the yen,
and British pound.
In fact, it was the first time a new
currency was added since the euro
was launched in 1999.
The move positions China and its
currency as a global economic power,
which is why it's so important
for it to maintain that currency's credibility.