Why China Manipulates Its Currency

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Information about Why China Manipulates Its Currency
Finance

Published on March 12, 2014

Author: johnmaxfield376

Source: slideshare.net

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.

WHY MANIPULATES THE 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 PURCHASNG POWER of the Yuan vs. the Dollar… Source: Federal Reserve

1970 1975 1980 1985 1990 1995 2000 2005 2010 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 Source: Federal Reserve

1981 1986 1991 1996 2001 2006 2011 $5 billion $3.8 trillion Source: Federal Reserve

In the process, China has become the world’s largest holder of foreign exchange reserves.

By a LONG WAY…

$510 Billion $536 Billion $727 Billion $772 Billion $1,277 Billion $3,820 Billion Russia Switzerland Saudi Arabia Eurozone Japan China 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 artificially cheap Yuan is also one of the main reasons that China’s GDP has done this…

1960 1970 1980 1990 2000 2010 $61 billion $7.3 trillion 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!

To download The Motley Fool’s FREE REPORT about how America could topple China’s manufacturing monopoly and make the world’s smartest investors RIDICULOUSLY RICH. CLICK HERE

Techin24/iStock/Thinkstock Liang Zhang/iStock/Thinkstock Nebojza/iStock/Thinkstock SeanPavonePhoto/iStock/Thinkstock Henry Gan/Photodisc/Thinkstock Photo credits…

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