# Currency manipulation **URL:** \ **Category:** Factual Questions\ **Created:** [August 23, 2018, 9:11pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131 "2018-08-23T21:11:56Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [August 23, 2018, 9:11pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/1 "2018-08-23T21:11:56Z")
An NPR podcast called [The Indicator](https://www.npr.org/templates/transcript/transcript.php?storyId=630262698) about how China and other countries have historically manipulated currency. (It’s a good, accessible, informative show albeit a little cutesy at times, especially this episode. But short and worth it.) China purchases a large amount of USD on the market. This glut of supply of yuan coupled with the scarcity of dollars drives up the international exchange rate for dollars and drives down the rate for yuan. This allows China to increase its exports to the U.S. because it’s such a better deal to be able to buy more stuff with a dollar. Then an economist said that there is a way that the U.S. can respond to this that is so simple that he is surprised we’ve never done it. Just buy up a bunch of yuan to balance off the effect. First, what would we do with all the yuan? Second, it seems like this would create a never-ending currency war that would result in each currency rising so high that neither country to afford to sell anything except to each other. Why would an economist suggest this as a reasonable counter-strategy? ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [August 24, 2018, 12:23pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/2 "2018-08-24T12:23:06Z")
My concern is how reliable the Yuan/Renminbi is as a [reserve currency](https://en.wikipedia.org/wiki/Reserve_currency#Global_currency_reserves). It was only declared a reserve currency a couple years ago and it’s holdings as such are only a tiny fraction of the total. (Basically there’s the Dollar, the Euro and noise.) Note that on that list all the other currencies are from stable democracies. The PRC is not remotely like that, so its currency is subject to the whim of very few people with highly political aims. Having some in your bank to smooth out trade deals is okay. But holding a really large amount is economic suicide. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [August 24, 2018, 1:18pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/3 "2018-08-24T13:18:55Z")
Lawrence Summers has served as Chief Economist for the World Bank, U.S. Secretary of the Treasury and as President of Harvard University. (The hosts of NPR’s Planet Money probably have college degrees also, but I wouldn’t know — neither has a Wikipedia page.) This March, Professor Summers [offered his opinion to the _Washington Post_](https://www.washingtonpost.com/opinions/the-dollar-is-getting-weaker-that-should-worry-us/2018/03/05/95154a20-1fdc-11e8-94da-ebf9d112159c_story.html?noredirect=on&utm_term=.28b35a9600e4): > [@](#): > > U.S. 10-year interest rates are about 220 basis points above German rates and about 280 basis points above Japanese rates. This implies that markets expect depreciation of the dollar by more than 25 percent against its major competitors over the next decade. If dollar depreciation of this magnitude were not expected, investors would prefer dollar assets to foreign assets, given the interest-rate differentials. > … Information on real yields suggests that much of this move reflects expected declines in real exchange rates. > … improvements in the U.S. economic outlook have been smaller than those in Europe and a number of other countries. To the extent that dollar weakness reflects disproportionate improvement abroad, it undercuts claims that U.S. policy is the reason for recent strong performance … > > The pattern of higher interest rates and a weakening currency suggests that on multiple dimensions, U.S. assets have to be put on sale at bargain prices to persuade foreigners to hold them or to induce Americans not to diversify into overseas assets. This pattern is relatively uncommon in the United States … [however it] is fairly ubiquitous in emerging markets, where it reflects anxiety over a country’s policy framework. > > I fear such anxiety may be emerging in the United States. President Trump and Treasury Secretary Steven Mnuchin show their ambivalence about a strong currency. Washington consciously pushes budget deficits way up in a full-employment economy. Questions have arisen with respect to the Fed’s independence, the United States’ traditional receptivity to foreign investment and its willingness to lash out at holders of dollar assets. > … These concerns are greatly magnified by the decision last week to impose across-the-board tariffs on steel and aluminum imports… > The confidence of global markets is much easier to maintain than to regain. Currency markets are sending a signal that the United States is not on a healthy path. Its time for the United States to strengthen the strong fundamentals on which a strong dollar and healthy economy depend. The dollar has strengthened since March but in _Financial Times_ earlier this month, Summers still does not express a sanguine view of Trump’s weak dollar policies: > [@](#): > > Fourth, market evidence calls into question the idea that the US has become a highly attractive place to invest because of Mr Trump’s policies. Net foreign direct investment in the US in the first quarter of 2018 was down nearly two-thirds against the first quarter of 2016. It appears Professor Summers would not agree with the NPR hosts that an over-valued dollar is among our pressing problems. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [August 24, 2018, 1:49pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/4 "2018-08-24T13:49:06Z")
> [@septimus](#): > > (The hosts of NPR’s Planet Money probably have college degrees also, but I wouldn’t know — neither has a Wikipedia page.) They both have LinkedIn pages. Cardiff Garcia has a bachelor’s in business from Georgetown and an MS in journalism from Columbia. Stacey Vanek Smith has a bachelor’s in literature from Princeton and also an MS in journalism from Columbia. So they are well educated but journalists, not economists. This show does a pretty good job, though, of taking important and occasionally impenetrable topics and making them accessible. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [August 24, 2018, 2:42pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/5 "2018-08-24T14:42:53Z")
Does the Yuan/Renminbi float freely now? Or is its value set by the Chinese government? ---
**Author:** ![zimaane](https://avatars.discourse-cdn.com/v4/letter/z/a3d4f5/32.png) [@zimaane](https://boards.straightdope.com/u/zimaane)\ **Post date:** [August 24, 2018, 7:21pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/6 "2018-08-24T19:21:54Z")
> [@](#): > > Then an economist said that there is a way that the U.S. can respond to this that is so simple that he is surprised we’ve never done it. Just buy up a bunch of yuan to balance off the effect. > > First, what would we do with all the yuan? Second, it seems like this would create a never-ending currency war that would result in each currency rising so high that neither country to afford to sell anything except to each other. Why would an economist suggest this as a reasonable counter-strategy? The other issue is that in order to buy yuan, the U.S. would have to print more dollars. These dollars will eventually be used to purchase U.S. products. But more dollars chasing the same number of goods is inflationary, and the U.S. govt (via the Fed) is trying to prevent inflation, not encourage it. ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [August 24, 2018, 7:56pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/7 "2018-08-24T19:56:41Z")
> [@Quartz](#): > > Does the Yuan/Renminbi float freely now? Or is its value set by the Chinese government? Can someone explain how the Chinese government can just “set” the value of it’s currency? I’ve never understood that part. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [August 24, 2018, 8:08pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/8 "2018-08-24T20:08:56Z")
> [@Slash1972](#): > > Can someone explain how the Chinese government can just “set” the value of it’s currency? I’ve never understood that part. Because they’re a sovereign power. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [August 24, 2018, 8:15pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/9 "2018-08-24T20:15:20Z")
> [@Quartz](#): > > Because they’re a sovereign power. ETA: and it’s their currency. ---
**Author:** ![zimaane](https://avatars.discourse-cdn.com/v4/letter/z/a3d4f5/32.png) [@zimaane](https://boards.straightdope.com/u/zimaane)\ **Post date:** [August 24, 2018, 9:04pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/10 "2018-08-24T21:04:11Z")
> [@](#): > > Can someone explain how the Chinese government can just “set” the value of it’s currency? I’ve never understood that part. The government of China controls the quantity of yuan in circulation through, among other things, its Central bank, which sets interest rate and banking policies. Lower interset rats and looser lending policies increase the quantity of yuan. So if the yuan is perceived as becoming too valuable, China can act to increase the supply of yuan and reduce its value, and do the opposite if the yuan is not valuable enough. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [August 24, 2018, 10:09pm UTC](https://boards.straightdope.com/t/currency-manipulation/820131/11 "2018-08-24T22:09:37Z")
> [@Slash1972](#): > > Can someone explain how the Chinese government can just “set” the value of it’s currency? I’ve never understood that part. From [Wikipedia](https://en.wikipedia.org/wiki/Renminbi): > [@](#): > > Since 2006, the renminbi exchange rate has been allowed to float in a narrow margin around a fixed base rate determined with reference to a basket of world currencies. The Chinese government has announced that it will gradually increase the flexibility of the exchange rate. See also [https://www.bloomberg.com/news/articles/2017-11-16/yuan-looks-more-like-floating-currency-nowadays-fed-study-shows](https://www.bloomberg.com/news/articles/2017-11-16/yuan-looks-more-like-floating-currency-nowadays-fed-study-shows) > **[China's currency is still nowhere near overtaking the dollar for global payments](https://www.cnbc.com/2018/02/02/china-currency-yuan-the-rmb-isnt-near-overtaking-the-us-dollar.html)** > > The renminbi, or Chinese yuan, is still used in a just a tiny percentage of global payments, according to Swift data. > [@](#): > > The biggest issue is the convertibility of the Chinese currency, which is still being largely controlled by Beijing, he said. From 2016: [https://www.fxcm.com/insights/how-does-china-control-exchange-rates/](https://www.fxcm.com/insights/how-does-china-control-exchange-rates/) > [@](#): > > Unlike many of its international trade partners (who allow the values of their currencies to float freely against others), China has a strictly controlled currency policy where it regulates trading activity and tries to control daily movements of the yuan on the forex market. > > In order to tame economic instability, China fixed its exchange rate in 1995 at slightly more than 8 yuan to the United States dollar and maintained that peg until July 2005, when it made a move toward a liberalisation of its currency policy by introducing a narrow trading band. Over the past decade, the government has gradually allowed the trading band to widen, starting at +/-0.3% and finally reaching +/-2% by March 2014.1) ---
**Author:** ![glowacks](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/glowacks/32/5548_2.png) [@glowacks](https://boards.straightdope.com/u/glowacks)\ **Post date:** [August 25, 2018, 1:01am UTC](https://boards.straightdope.com/t/currency-manipulation/820131/12 "2018-08-25T01:01:01Z")
+/- 2% is still insanely restrictive when you see that the Turkish lira went from around 3.5 per dollar to 7 within the last year, and was at 1.5 a decade ago. Most currencies float. China’s hovers. Since they take in so much foreign currency, all they need to do is throw more yuan into the renmibi system and it stabilizes. It’s much harder for the opposite to occur, which is why currencies that are depreciating have no easy fix besides having their central bank raise interest rates a ton to encourage people to buy more of it. ---
**Author:** ![penultima\_thule](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/penultima_thule/32/3833_2.png) [@penultima\_thule](https://boards.straightdope.com/u/penultima_thule)\ **Post date:** [August 25, 2018, 4:29am UTC](https://boards.straightdope.com/t/currency-manipulation/820131/13 "2018-08-25T04:29:05Z")
And, of course this thesis goes, the US is the only country which doesn’t manipulate it’s currency. That free trade is only fair trade when it’s to the US’s advantage. It’s a cheap, easy and flawed accusation to throw around. > [@Michael W. Klein](#): > > Currency manipulation is not like pornography–you don’t know it when you think you see it In April 2018 U.S. Treasury published its [latest report](https://home.treasury.gov/sites/default/files/2018-04/2018-04-13-Spring-2018-FX-Report-FINAL.pdf) into foreign exchange markets. China, Japan, South Korea, Germany, Switzerland and India are on a monitoring list which implies these currencies are under greater scrutiny for being currency manipulators. But as previously, the **US Treasury did not label any country as a currency manipulator.** It’s a loaded and prejudicial phrase. Within recent memory the governments of emerging market economies with currencies pegged to the USD have cried foul over U.S. domestic policies. The US [correctly] focused on domestic concerns manipulated it’s currency to the detriment of it’s trading partners to the extent of exporting recessions. > [@Gary Howes](#): > > It may be true that the Chinese authorities have been intervening to slow the currency’s appreciation, but it’s [obviously false to say that they are devaluing their currency](https://www.poundsterlinglive.com/usd/8896-trump-currency-manipulation-accusations-and-the-dollar-outlook). On the contrary, **CNY has appreciated 9.5% vs USD since Trump took office**." But Trump by word and action on tariffs and trade wars is talking/taking down the USD to shrink the US trade deficit. Which is another form of currency manipulation. MAGA comes at the cost of making the USD weak. And likely losing it’s reserve currency status.