The United States is looking to have Treasury Secretary, Timothy Geithner, to formally declare that China is manipulating its currency. Basically, as U.S. business men who are getting things manufactured in China must send that factory a certain amount of money for that specific order, or orders. The factory will receive the money always in U.S. currency. Once they have received the money, they buy Chinese currency, ren-men-bi. These factories end up with billions of American dollars that they must convert to ren-men-bi so that they can pay all their bills, water, electricity, labor, transportation, and so on. The issue is that the demand of ren-men-bi is rising, so by the law of economics so should the price of ren-men-bi, at least if the supply RMB is constant. But, the supply isn't constant. The Central Bank of China is creating more RMB to keep the price of RMB down. This is price manipulation. but why would you do this??
The Chinese do this to make their exports seem more attractive, it makes Chinese goods cheaper. At the same time, this is making American goods more expensive which puts American businessmen out of business. Lastly, what does this do for Chinese businessmen? It eliminates any growth of purchasing power for these businessmen, they will have billions of RMB which continues to get weaker and weaker as time goes on.
What is the solution to this? To get it started, we should declare the Chinese government is manipulating its currency. By doing this, there may be a chance of the RMB growing stronger, robust economic growth can be spread through the world (more countries will be able to be competing exporters), and Chinese people will be able to afford more imports with a stronger currency!
Yes, I agree with the fact that with more RMB, the less value it has. BUT, the government may be doing that so that more poverty families can afford things to support. I particularly think that you don't have to worry about manipulation, because it's China thats getting ripped off by importing/exporting from other countries. They make the most of the products and yet people are still making $3-$5/hr in the factories. From the population, you can't imagine what it is like and China in certain areas, is still very behind on resource.
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