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Pegging the yuan | Money, banking and central banks | Finance & Capital Markets | Khan Academy

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How the Chinese Central Bank could peg the Yuan to the dollar by printing Yuan and buying dollars (building up a dollar reserve). Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/currency-tutorial/v/chinese-central-bank-buying-treasuries?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/currency-tutorial/v/currency-effect-on-trade-review?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: This tutorial walks through how China's undervaluing of its currency impacts trade and prices (which also fuels cheap borrowing for the U.S.). About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
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Text Comments (39)
Ikrom Numanov (1 month ago)
Thank you! That's what i was looking for.
ChessIsLife (5 months ago)
Please correct your spelling mistake, it's not Chines.
Petar Petrovic (6 months ago)
Maaannn, you are so boring repiting yourself over and over again.....
Tina Jackson (1 year ago)
Well, the fact is too many foreign reserves would be a disaster.
zhang克 (1 year ago)
In which way does the Chinese Central Bank manipulate its currency? If it liberates the Chinese Yuan, would the Chinese people even have more money to buy everything in the world than they do it today? See the Canadian house bubble. Everywhere are the Chinese.
Steve McGarrah (2 years ago)
Good simple explanation
Joe Smoe (3 years ago)
What about demand push inflation in China? Won't the increased money supply mitigate any benefit to their business? The price of the doll will go up in China, which will then be offset by the decrease in the cost of the Yuan. You will be left with roughly the same situation you started with, no? I think the real Chinese advantage is derived from lower labor costs and less regulation, both of which are passed onto the American. Am I wrong? I don't see how currency manipulation could have any tangible effects.
Lorenzo Marchetti (3 years ago)
Excellent! veramente ben fatto. Complimenti.
manu11435 (4 years ago)
this is priceless !!! thank u very much :)
Mr. Ontological (4 years ago)
FYI it's pronounced Yuan not Wan.
Warren Lee (4 years ago)
Yu-an??? Which sounds like Wan??? Honestly, Chinese pinyin isn't perfect. Solution would be to respell yuan into yuen but too late!
Md Nurul Absar (5 years ago)
thanks..  great presentation !!
Henry Andrews (5 years ago)
Great video on currency.
bsbs1986 (5 years ago)
You have the video to explain the part you referred to at 2.24 to 2.30?
QuantPhilosopher89 (6 years ago)
You do know that the term "money printing" in regards to monetary policy does not actually mean that they're printing dollar bills, right?
Abiel Alvarenga (1 year ago)
QuantPhilosopher89 Don’t think he said they physically print money. It’s a term used interchangeably for money creation
Walker Green (6 years ago)
...because that would inflate the U.S. dollar thus making our currency less valuable. Idiot. We have less trees anyways.
renzokukenleonhart (6 years ago)
The printed yuan doesn't go to U.S., it goes to the seller in china who wants the yuan. The chinese person has $100 that needs to be converted to yuan and the american guy only has 500 yuan. But to get a 10 to 1, there needs to be 1000 yuan for $100 so the central bank of china print another 500 yuan and sell it to the chinese guy for his dollar.That's why china holds so much of American dollars in reserve.
galanoth17 (6 years ago)
shouldn't this cause inflation in China if they are printing so much money?
Richie Tandel (6 years ago)
WoW!!! I used to always think, why Japanese government intervene in Forex market. This might be very good reason. Thanks Sal.
David Zhang (6 years ago)
I think you think China is afraid of US invading China? I seriously doubt a war will break out between 2 nations that both holds ICBM. Another reason I think is because China is trying to gain leverage with the US's wall street/corporate elites, whom is the true masters of the nations. As long as they are rich, they will promote stability policy between US and China, and stability can only benefit China in the short and long term.
David Zhang (6 years ago)
Something I don't understand, if China wants to peg its currency to 10-1 for dollar, so they print more Yuan, but where does the newly printed Yuan go? In theory the Yuan should go to USA to buy the dollars to keep the currency peg balance right? But last time I check US holds almost no Yuan reserve, and where does this Yuan end up? Who receives the printed Yuan after it is being printed?
David Zhang (6 years ago)
We already do, it is called quanative easing, and so far we have printed more than 1 trillion, and if you think it will only hurt China then you are dead wrong, foremost, it will hurt the American people by inflation, have you notice how much food and gas other have gone up in price during the past 2 years or so? The same thing goes for global commodity market. But guess who benefited the most? The elite 1% who is able to capture this money cheaply first and massively increase their wealth.
Nit p (6 years ago)
Khan, Thanks a ton. But if this keep going wont a weakening US economy diminish the Chinese export demand and make a counter effect. Or does it mean that even with artificial Chinese currency valuation US is still in reality growing that the Chinese exports are still growing in the US? Sorry I cant connect here. Again thanks a ton for all your work. Good luck!
NCY_ (6 years ago)
Hi Khan, thanks for all your awesome videos. I've got just 1 issue that bugged me a little. Yuan is pronounced as "yu-en". The way you pronounced it sounds like "won"; South-Korea's currency.
PimpinBassie2 (6 years ago)
Hu Jintao likes pegging!
Pfsif (6 years ago)
Printing money is stealing from those who save in dollars.
Nineth Lion (6 years ago)
am I the only grammar mofo that kept on being slightly annoyed by the fact that Sal kept spelling Chinese "Chines"?
urbandiscipline88 (7 years ago)
@dexterthiam88 lol...in that case the US would need some super fast printers.
Bosskane (7 years ago)
@marcabela Why is china buy US treasuries if they are going to be worthless once the yuan is revalued
Bosskane (7 years ago)
@marcabela could you explain what is china doing?
Atticus Pensuke (7 years ago)
@khanacademy Marcabela probably means export-lead growth is not real growth (which you probably agree with)
FengNing85 (8 years ago)
Amazing videos. You are pronouncing Yuan wrong, however. Its pronounced, you-on, not won- which is of course the Korean currency. Keep up the great work.
audrey ma (8 years ago)
the claim that cheap yuan will lead to more export in dollar term clearly ignore the price elasticity of chinese exports--given that they are necesscity, the elasticity is likely to be low (Joseph Stiglitz agrees on WSJ). Just like no one would argue that the low price of oil adds to the competitivelness of oil-exporting country and lead to their trade-surplus, we have to rethink when we claim cheap yuan leads to trade surplus. The fact that this claims is repeated does not mean it is true.
grateful (8 years ago)
with QE2 (read money printing)america did that.hey guys america is not very innocent either.lol
dexter thiam (8 years ago)
Why don't the US print more money.. see who can print more.. LOl
OD533 (8 years ago)
Unless American workers are willing to spend 11 months per year in a dorm working 6 days a week 12 hours plus a week with no benefits, safety laws or unions while being paid a 1/10 or 1/100 the salary a American worker is willing to be paid, THEN cost's aren't going to go down people. Regarding the trade imbalance problems, read Buffet's "Squanderville versus Thriftville" or watch I.O.U.S.A.
pitty031 (8 years ago)
Sal... yet another great video. Keep it coming. You are definitely going a heck of a job.
Khan Academy (8 years ago)
@marcabela By artificially devaluing one's currency, you are making your exports cheaper in other countries which makes their demand higher (and making other countries' good more expensive in your own). This will clearly stimulate demand for exports which would stimulate investment in factories, etc. domestically which will create growth. This is what export-lead growth is.

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