China, Yuan and Dollar - Part 4: The Chinese case of Yuan

So, where does china fits in, what seems to be an issue of individual countries and their money management?

It’s just as simple as this, u are running a wholesale shop in a market. Some one brings (exports) tomatoes daily… there are other tomato suppliers for you but he supplies it cheap and in huge mass. So most of the shop owners buy tomato from him. But, he is not buying anything from you. Even though you want to settle his balance with some potatoes and dal from your shop, he says, just give me money, and you have been doing this. One fine day you realize that, all your goods are stagnant/ no demand for your products and money leaves from your pocket daily. You wanted to see, what the tomato vendor is doing in the backyard after getting payments from you…

1) He is not giving money to his wife and other labours who work in the family to spend the money.

2) He spends all his money in buying new fields and investing in producing cheap tomatoes

3) He indirectly lends you money to run your shop, through bonds which you issue.

4) He gets more customers by selling tomatoes at low price and eliminates small farmers from market.

One fine day, u and ur relatives, wake up and tell him, boss, better u spend the money on other things, otherwise we will levy tax on your tomatoes and you will suffer, because ur neighbour is ready to give tomatoes and will listen to us..

He retaliates back that,

1) If I don’t give tomato, Ur shops will need to buy at a higher price and as such u idiots don’t have the habit of saving money, will find very difficult to buy products from others which will be costlier than mine.

2) I will stop lending you money and will sell all the loan bonds given to you in the market at a cheaper rate, and your money value will go down since I sell in huge quantity and less demand will be there , and because you are the leader of all shops, everyone will collapse.

This is what exactly the situation happening between China and US. But is this a matter of concern only for US and not for other countries? Why are they silent on these issues? To understand in a broader manner, we need to understand

• What role currency plays in economy,

• What appreciation or depreciation means for one country and relative countries,

• How currencies are related to each other etc, in detail.

[Via http://capitalmoney.wordpress.com]