Re: How Does Chinese Currency Work?
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Hey, sorry if this isn't the right forum for this, but it seems like the most appropriate to me.
My friend was trying to describe to me why people think the way China operates their currency is a bad thing, and I just don't really get it. The way he explained it is that they peg their currency (the yuan) to the dollar, artificially deflating it's value. So for example, if it would trade in the open market at 3yuan = 1dollar, china might artificially enforce a 7yuan = 1dollar exchange rate (don't know if these are the right numbers). He said that this allowed them to export their goods cheaper, making it harder to compete, and so it was bad for the US economy. He said something about how if they traded their yuans on the open market they would have to pay their people more and wouldn't be able to export their goods as cheaply... and I just don't get how this works.
So is the argument really that artificially devaluing their own currency benefits them somehow? And hurts us?? How can this be the case? Something must be wrong about either the way he explained things, or the standard analysis. I don't really get all the particulars and would be very interested to hear somebody that does summarize the situation.
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I've heard this before but also haven't heard it explained in a way that makes sense to me (likely my fault).
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