Home › Forums › Discuss What’s Wrong with Textbook Economics › US-China Trade Relations › Reply To: US-China Trade Relations
Is this narrative correct despite the fact that that China manipulates it’s exchange rates?
“the exchange rate system ensures that the money that leaves our country makes its way back into the US. For example, say that the Chinese are stockpiling dollar reserves, rather than reinvesting them. If people are offering more dollars for yuan(intending to either buy Chinese products or invest in Chinese assets) than others are willing to trade yuan for dollars( to invest in American goods or assets), then currency dealers will see that there is a shortage of yuan and a glut of dollars, and will raise the dollar price of yuan. This depreciation of the dollar will make Chinese products and assets relatively more expensive, and American products and assets relatively cheaper. The exchange rate will adjust until there is equilibrium.”
This comes from Bob Murphy’s book, except that the country he was talking about was Japan, not China.
Are the Forex traders able to overcome the peg?