How is china benifiting from fixed exchange rate regimes?
Give example.
Answer:
As a former Honey producer I did some research on China and why & how could they produce Honey so much cheaper than producers in the USA.
Well, what I came up with was the exchange rates were such that for the amount I would pay 1 American worker to help me I could hire 60 Chinese workers.
The fixed exchange rates are keeping workers wages low in China, while the Chinese government builds a huge surplus of foriegn currency reserves to use as investment seed money in the western world.
Why would the west be worried about that?
Well, the world balance of wealth could shift because for example, China could buy so much oil that oil products in the west go way up in price halting some productitivity in the western world where productitivity depends so much on oil.
Currently China has a fixed currency exchange. They purposely keep it lower than it actually is to entice export and effectively compete with other nations. If they allowed the exchange rate to fluctuate than their prices would ultimately rise and become less competitive. Ex.) China's fish market would become more pricey and therefore become parallel to other markets. It would induce greater competition (loss of profit) between China's fish market and other countries fish markets.
*China has always produced in terms of quantity and affordability. Never quality. (Current news issue)
nicely put Wolfie
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