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### Course: AP®︎/College Macroeconomics>Unit 6

Lesson 1: The balance of payments

# Data on Chinese US balance of payments

Learn about the balance of payments (BOP) by taking a look at the BOP for the United States in 2006 and how it relates to China's currency.   Created by Sal Khan.

## Want to join the conversation?

• At about , Sal mentions China investing in other countries which increases the value of the currency of the country being invested in. Isn't that a good thing? I understand how it is good for China's currency to remain "weak", but is that desirable for all countries other than the U.S.?
Also, how could a country, whose currency's value has increased, change their market to reflect the increase in value of their currency and why(in this example) do they not?
• In New Zealand (where I live) a lot of our country's money is made by exporting goods. If we sell an item in the U.S. for US\$ and then convert the US\$ into NZD\$ we will get more NZD\$ if we have a weaker currency. For example, if we sell an item for US\$10 and 1 NZD\$ is worth US\$0.70 when we convert the money we will have NZD\$14.29 but if 1 NZD\$ is worth US\$0.90 we will only get NZD\$11.11

If a country's main source of income is exporting goods then it is more desirable to have a weak currency.
I would have to think about this some more to be sure, but I think that the only reason to have a strong currency is when you are importing goods, so you want a stronger currency than a country that you are importing goods from and a weaker currency then a country exporting goods to.

Hope this helps and that I haven't been to confusing. :)
• Does the US buy foreign bonds in an attempt to keep trade imbalances as well? Salman indicates that other countries aside from China do this at , so it stands to reason the US would do this.
• Why other developing/ under developed countries not following Chinese pattern of printing money to buy foreign assets/ currencies? This pattern can be followed by all countries doing more export with USA than import? Is it leading up to something similar to Thai banking crisis? How is this not impacting inflation in China?
• If China is printing so much Yens in order to buy US dollars or any other currencies. Why the chinese inflation is not growing so much?. I read some statistics and the inflation is always between 1% and 4% (not so dramatic inflation). Is it happening because such amount of printed Yens are in correlation with the growth of China, and so, even though the supply of Yens increased, let`s say X%, the demand also is increasing in same percentage of X% (because they are growing)?
• It is partly because China's growth is nearly as fast. However, many claim that China is also hiding the real inflation rate. How they do this is explained by Sal in the next video.
• What are some goods that America sells to China? Software maybe some food? Machinery?
• From what I know, there is a large demand for American software in China. :)
(1 vote)
• In regards to your question at (how were they still able to keep their currency PEGed), your answer given in the video was not the first thing to come to mind. The first idea I thought about deals specifically with them purchasing certain assets, such as stocks, that can actually appreciate in value, hence increasing the amount of (and their possesion of) US dollars, which would then allow them to continue on with the purchasing of T-bonds and such to keep the interest rates (for us) down, which would then lead to the consumers purchasing more of "the microwaves." Also, it can be seen as this (in my mind): it does not look like their foreign owned assets make up for the import of their goods because we cannot see their UNREALIZED GAINS, but once they convert this to REALIZED GAINS in the future, we will be able to come back to that year and do the math, which should even out.

So....Am I thinking about this correctly? And if not, where have I gone wrong in my thinking?
• Small note.
I believe the purchasing of chinese investments are outflows of money, and would be represented by a negative number in the BoP, so doesn't row 40 say that Americans are selling their Chinese investments?
(1 vote)
• you are correct. It is specified in the leftmost coulmn as "(increase/financial outflow(-)" and no it doesnt mean amercans are selling
(1 vote)
• So why is the US\$ not appreciating madly in comparison to the rest of the world?
(1 vote)
• why do you think it should be doing that?
(1 vote)
• What are some goods that America sells to China? Software maybe some food? Machinery?
(1 vote)
• Please correct me if I'm wrong but here you go, US goods exports to China come from a wide range of industries including transportation equipment, agriculture, computers and electronics, and oil and gas, sustaining logistics jobs in America's ports and throughout the country and lots of soybeans (the biggest export to China)
(1 vote)
• So What happens when a country invades / captures another economy? For example what happened to the the Deutschmark and Yen after WWII?
(1 vote)
• they had lost everything and had to start again from scratch like with the eu.
(1 vote)