HOW CHINA🇨🇳 HAS MANAGED TO SECRETLY R**-**F THE US🇺🇸 IN TRADE.☕️
1. Direct Intervention in Forex Markets
The People's Bank of China (PBOC) sell yuan (CNY) and buy US dollars in forex. This increases the supply of yuan and the demand for dollars, causing the yuan to weaken against the dollar.
A weaker yuan makes Chinese exports cheaper and US imports more expensive, boosting China's trade surplus.
2. Capital Controls
Hypothetically, Chinese government could restrict capital outflows (preventing investors from taking money out of China) to maintain demand for the yuan.
or, they could encourage capital inflows (foreign investment into China) to artificially strengthen or weaken the currency when needed.
3. Setting a Controlled Exchange Rate
Unlike fully free-floating currencies, the yuan operates under a managed float system where the PBOC sets a daily reference rate. The government could systematically adjust this reference rate to favor trade competitiveness.
what is a Reference rate ?
A reference rate is the official exchange rate set by a central bank or monetary authority as a benchmark for currency valuation. It is often used to guide financial markets, influence monetary policy, and manage exchange rate fluctuations.
What does it do ?
i. Helps prevent excessive volatility in currency markets.
ii. It allows China to keep the yuan stable or adjust it to make exports more attractive.
With that , the government can intentionally influence inflation, investment, and economic growth. Although many countries use reference rates for currency management, China’s system is more actively managed compared to free-market economies like the US
4. Accumulating US Debt
China holds a large amount of US Treasury bonds. By buying more Treasuries, they push up demand for the dollar, making the yuan weaker.
If they wanted to strengthen the yuan,they could sell off Treasuries, reducing dollar demand.
These tactics, would give any country's economy, an edge in international trade by making its goods cheaper and foreign goods more expensive
