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  • It's been one of Trump's favorite

  • accusations toward other nations.

  • Currency manipulation.

  • A currency manipulator.

  • China is a currency manipulator.

  • But how can banknotes

  • like these, be manipulated?

  • Let's break it down.

  • One example of currency manipulation

  • is what a country might do when

  • it wants to minimize the effects of

  • having a strong currency.

  • Let's say for example,

  • that one U.S. dollar is equal to ten

  • dollars in the Republic of Monopoly

  • and with ten Monopoly dollars,

  • I can buy one cup of coffee

  • from the United States.

  • Now imagine that gradually inside the

  • Republic of Monopoly, the economy starts

  • doing very well and is extremely stable.

  • The currency naturally could rise

  • against all other currencies.

  • So now that one U.S. dollar only

  • earns you eight Monopoly dollars

  • instead of ten.

  • For me to buy that same cup of coffee

  • from the United States,

  • I only need to pay eight

  • Monopoly dollars.

  • So, it's cheaper for me.

  • So, this currency has become more valuable.

  • My citizens have more spending

  • power when they travel abroad and as a

  • country we have more buying power

  • when I want to import goods.

  • So, what's the problem?

  • Why manipulate?

  • Say I want to sell muffins to the U.S.

  • Instead of the U.S. paying me

  • one dollar like it used to,

  • it would now cost them $1.20,

  • all because my economy was

  • stronger and my currency is doing well.

  • No real change in taxes or monetary policy

  • and if I'm a large exporter and

  • shipping out more goods than I'm

  • bringing in, like China, this makes my

  • goods much less competitive.

  • In fact, you might even begin

  • buying from another country.

  • Hence, the urge to manipulate.

  • There is a number of other reasons a country

  • might choose to do this besides maintaining

  • competitiveness, including wanting to control

  • inflation or just maintain its

  • own financial stability.

  • China, is of course one of the most targeted

  • countries for currency manipulation.

  • When it devalues its currency,

  • it essentially wants to keep the cost of all

  • its goods and services less expensive

  • than other countries.

  • It's the world's second-biggest economy

  • after the U.S. but according to experts,

  • it actually hasn't been pushing down its currency

  • to benefit Chinese exporters

  • in years and even if it were,

  • there's a law which

  • requires the U.S. to spend a year

  • negotiating a solution before

  • it can retaliate.

  • President Trump recently backtracked

  • on his initial stance of

  • labeling China as a currency manipulator

  • but his accusations aren't

  • completely unfounded.

  • In 1994, the U.S. branded China

  • a currency manipulator.

  • Under the law, though labeling a country

  • as such can trigger an investigation

  • and require negotiations on

  • tariffs and trade.

  • China's yuan is becoming more

  • influential on the global scale.

  • It was recently added to the International

  • Monetary Fund's basket of reserve

  • currencies which are currencies deemed

  • safe, reliable, and freely used.

  • Joining the U.S. dollar, the euro, the yen,

  • and British pound.

  • In fact, it was the first time a new

  • currency was added since the euro

  • was launched in 1999.

  • The move positions China and its

  • currency as a global economic power,

  • which is why it's so important

  • for it to maintain that currency's credibility.

It's been one of Trump's favorite

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What is currency manipulation? | CNBC Explains

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    PENG posted on 2019/02/13
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