why china manipulates its currency
DESCRIPTION
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
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WHY
MANIPULATESTHE YUAN
CHINA
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China is a CURRENCY MANIPULATOR.
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This isn’t an INDICTMENT.
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It’s a FACT.
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1970 1975 1980 1985 1990 1995 2000 2005 2010
Here’s the real
PURCHASING POWERof the Yuan vs. the Dollar…
Source: Federal Reserve
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1970 1975 1980 1985 1990 1995 2000 2005 2010
See how it’s gone DOWN?
Source: Federal Reserve
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This isn’t a
MISTAKE
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Over the last 4 decades, China has
INTENTIONALLY DEVALUED the Yuan
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Its central bank PRINTS YUAN.
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Then uses it to BUY U.S. DOLLARS.
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This increases the SUPPLY of Yuan in currency markets...
(which DECREASES the price of a Yuan.)
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…and increases the DEMAND for U.S. Dollars.
(which INCREASES the price of a Dollar.)
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This means that China owns
A LOT OF DOLLARS
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1981 1986 1991 1996 2001 2006 2011
Here are China’s foreign currency reserves…
Source: Federal Reserve
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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
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In the process, China has become the world’s
largest holder of foreign exchange reserves.
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By a LONG WAY…
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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
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Why
does
China do
this???
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China’s economy is
based on EXPORTS.
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And it sells more exports if the
Yuan is cheap.
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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
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Which is a good deal
when you consider…
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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
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An artifi cially cheap Yuan
is also one of the main
reasons that China’s GDP
has done this…
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1960 1970 1980 1990 2000 2010
$61 billio
n
$7.3 trillio
n
Source: Federal Reserve
China’s GDP in current U.S. dollars…
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So, why does China
manipulate the Yuan?
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It does so to
BOOST EXPORTS.
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Which, in turn,
FUELS ECONOMIC GROWTH.
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It’s really as simple as that!
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Liang Zhang/iStock/Thinkstock
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Henry Gan/Photodisc/Thinkstock
Photo credits…