How does China manipulate its currency?

Discussion in 'Politics, Religion, Social Issues' started by MACDRIVE, Jul 5, 2007.

  1. MACDRIVE macrumors 68000

    MACDRIVE

    Joined:
    Feb 17, 2006
    Location:
    Clovis, California
    #1
    Manufacturing & Technology News


    I've been looking into this lately and I'm trying to figure out how China's yuan is valued less than the U.S dollar when they're exporting more stuff to the U.S than we export to them. :confused:
     
  2. miloblithe macrumors 68020

    miloblithe

    Joined:
    Nov 14, 2003
    Location:
    Washington, DC
    #2
    China doesn't let the yuan float. In the past, they just tied it to the dollar, like 1 dollar = 7 yuan. Right now, it floats a little, I think, by being tied to a "basket" of currencies (probably dollar, pound, euro, yen) and being allowed to fluctuate within a narrowly defined band, so like 1 dollar = 6.8 - 6.9 yuan.

    Just because we import more from them than they do from us doesn't necessarily mean that the yuan should be worth more than the dollar or that it's currently undervalued. A lot also has to do with the rate of return one gets on yuan-devaluated investments, which, considering China has one of the fastest growing economies in the world, is pretty good.

    So yeah, it's undervalued, but probably not by as much as you think.
     
  3. MACDRIVE thread starter macrumors 68000

    MACDRIVE

    Joined:
    Feb 17, 2006
    Location:
    Clovis, California
    #3
    Yeah I've read that term floating currency at various sites on the web. What does that mean exactly and how does China keep their yuan from floating? :confused:
     
  4. Ugg macrumors 68000

    Ugg

    Joined:
    Apr 7, 2003
    Location:
    Penryn
    #4

    By locking the official exchange rate to a very narrow range.

    I'm not so sure that I agree with milo that the yuan wouldn't fluctuate much more than it does currently. I do think that China is doing it in part because they have such young and relatively weak internal financial market. It wouldn't take much to drive the Yuan into the ground.
     
  5. miloblithe macrumors 68020

    miloblithe

    Joined:
    Nov 14, 2003
    Location:
    Washington, DC
    #5
    Oh I didn't mean to imply that it wouldn't fluctuate, I just don't think it would go to 1 yuan to the dollar any time soon. Maybe double in value at most.
     

Share This Page