Posted by From Today onwards, I will be writing a series of microblogs. These articles will be short in length and will answer or address a specific question. So, today’s question is “Why does China devalue its currency a lot?”
As we all know China is the manufacturing hub of the world. It is the worlds largest exporter. They make everything and sell it to the world.
The answer to this question is hidden in a concept called Exchange rate.
Exchange rate: How much your currency is worth when you trade it for another country’s currency.
Suppose 1US$ = 6¥
If Yuan(¥) appreciates to 4¥. It becomes cheaper for Chinese consumers to import foreign goods and Chinese exports to other countries get more expensive. Chinese imports will rise and exports would fall.
Since China is the largest exporter, it would want to continue to be the largest exporter. It wouldn’t want its imports to rise and exports to fall. So, it is sensible for the Chinese government to devalue or depreciate its currency.
When Yuan depreciates it becomes easier for world consumers to buy Chinese goods, which is exactly what the Chinese govt. wants. So, they depreciate their currency.
I hope you understand the concept. Thank you for reading
In your article, I feel, what you are meaning to say is not depreciation (due to inflation), but rather you perhaps are trying to refer to the process of currency devaluation that the Chinese government resorts to suddenly, to reap its benefits… Since there is a difference between currency depreciation and currency devaluation…
A very good idea to start mini blogs, by the way….
Yeah, You are right! I meant to say that Chinese govt. devalues its own currency in order to keep its exports cheap to the world. They do it by buying dollars or any other nation’s currency
Yup…