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  • After years of economic growth, China’s renminbi currency, also called theyuan”,

  • has been added to the list of elite global currencies by the International Monetary Fund.

  • Alongside the dollar, euro, pound, and Japanese yen, the renminbi is officially recognized

  • by the IMF to be safe, reliable and freely usable. However, despite this designation,

  • China has been known to practice currency manipulation in an effort to influence the

  • value of the yuan. So what does that mean exactly? How does China manipulate its currency?

  • Basically, currency manipulation is the way countries attempt to avoid the negative market

  • effects of having a strong currency. The value of a currency is essentially dependent on

  • how much or how little it is used, which in turn is dependent on how strong a country’s

  • trade balance is. When China has a trade surplus, people in other countries basically have to

  • buy Chinese currency in order to buy Chinese goods. With an increase in demand, the price,

  • orvalueof the currency goes up.

  • However, as currencies get stronger, it becomes more expensive to purchase goods. Other, cheaper

  • currencies become more advantageous to spend. In a way, currency itself can be viewed as

  • a product, whose price is based on demand.

  • As China has seen rapid and intense economic growth, theyve attempted to stem the inevitable

  • devaluation of their currency as their trade surplus grows. This is done through currency

  • manipulation, which is when one currency is used to buy huge amounts of foreign currency.

  • That makes it possible to prevent the currency from gaining too much value, while also bolstering

  • other currencies as well, and keeping them from becoming too competitively cheap.

  • So, how does this work in action? According to Economic Policy Institute, China spent

  • half a trillion dollars in 2013 alone purchasing foreign currencies. This was likely to prevent

  • the value of the yuan from making manufacturing in China less profitable, while attempting

  • to cheapen the US dollar.

  • This type of manipulation around the world is thought to cost the US between 2.3 and

  • 5.8 million jobs, as well as hundreds of billions in trade deficit. Like all trade relations,

  • currency manipulation is an inherently self serving and competitive move by many countries,

  • although China is considered the biggest offender. In August 2015, they devalued their currency

  • by nearly 2% against the US dollar, forcing China’s trade balance to favor exports over

  • imports. It also shook global markets and was the country’s biggest one day drop in

  • twenty years.

  • However, both the devaluation and the IMF designation mean that the yuan is now less

  • controlled by the Chinese government. As the currency sees greater scrutiny as an elite

  • global medium, market forces will likely overpower manipulation. But in the end, China may have

  • gotten what it wanted anyway, as the yuan now holds greater weight than either the pound

  • or the Japanese yen. Although it has far to go before rivaling the dollar, its growth

  • seems inevitable.

  • China’s currency might have a huge impact on economies around the world; so how dependent

  • is the world economy on China? Find out in our video. Thanks for watching TestTube News!

  • Be sure to subscribe so you don’t miss out on new videos.

After years of economic growth, China’s renminbi currency, also called theyuan”,

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