Question:

Demand for Chinese goods and the value of the Yuan?

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We were watching a documentary today in Cultural Geography class (a college course) about China, Taiwan, and international trade. In the documentary, it was being said that the Chinese bring home miniscule wages each day in terms of US dollars, and yet they live on it, pretty much, just fine. To me, this implies that the US dollar is worth more than the Chinese Yuan. But, in all my three college economics courses, I have been taught that the value of a nation's currency is more or less determined by international demand for their exports. So, with all the exports coming from China, why is their money still worth less than ours?

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  1. Take my answer very cautiously, as I could be wrong, but anyway:

    There were reports that the Chinese Yuan is 'fixed' to the US dollar so that the US can still afford Chinese exports (US dollar is weak, and if the Yuan rises they cannot buy as many exports). Therefore, because of the fixing of currencies the Chinese are still able to export to America.

    Thus, both economies benefit from the artificial 'fixing' of the currencies to each other.


  2. The Chinese government fixes or "pegs" its currency to a less valuable position relative to the US dollar so that people in the United States will buy things from China.  They very carefully control how much of their currency there is relative to the dollar.  This means that the Chinese government has bought a lot of 30 year treasury notes from the US government.  This is the main reason for China's recent economic success.  This can be difficult for some Chinese citizens.  I had a friend from China at college and she had to apply for permission exchange her Chinese money for US dollars and it had to be done slowly over time.  It's a good thing for the country, but it has its downsides too.

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