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> This would lead to factories reducing their production and laying off employees Trade imbalances resulting from an economy run on bitcoins would also decimat

> This would lead to factories reducing their production and laying off employees Trade imbalances resulting from an economy run on bitcoins would also decimate most domestic production, so sethg's statement is doubly true. It's the same reason you hear members of congress railing against China's currency peg that artificially deflates the yuan; it makes Chinese exports cheaper to the rest of the world.

nunb 15y ago
Does "deflates the yuan" mean the yuan is deflationary? In that case its value should get higher and exports should decrease, as happened with the Japanese Yen.
- joelhaus 15y ago
  A deflated Yuan allows you to buy more Chinese goods for the same USD[1]. Regarding the second half of your question, you must look at the supply of the currency versus the demand for that currency. It's common for governments to intervene in foreign exchange markets as a means to an end. This makes it a difficult market to invest in, as artificial forces can move the market. Just because there might be a fundamental economic reason for the Yen to appreciate, that doesn't mean the Japanese (or some other) government won't intervene in order to improve their trade balance. The mechanism that the Chinese government uses to keep the Yuan pegged to the USD, is the purchase of U.S. treasuries[2]. Here is some additional info: http://fpc.state.gov/documents/organization/65773.pdf http://fpc.state.gov/documents/organization/65773.pdf http://www.nakedcapitalism.com/2010/03/on-chinas-currency-peg-and-potential-policy-actions.html http://www.nakedcapitalism.com/2010/03/on-chinas-currency-pe... -------------------- [1] http://en.wikipedia.org/wiki/Fixed_exchange_rate_system#Mechanism http://en.wikipedia.org/wiki/Fixed_exchange_rate_system#Mech... [2] http://www.treasury.gov/press-center/press-releases/Pages/js774.aspx http://www.treasury.gov/press-center/press-releases/Pages/js...

nunb 15y ago

Does "deflates the yuan" mean the yuan is deflationary? In that case its value should get higher and exports should decrease, as happened with the Japanese Yen.

joelhaus 15y ago
A deflated Yuan allows you to buy more Chinese goods for the same USD[1]. Regarding the second half of your question, you must look at the supply of the currency versus the demand for that currency. It's common for governments to intervene in foreign exchange markets as a means to an end. This makes it a difficult market to invest in, as artificial forces can move the market. Just because there might be a fundamental economic reason for the Yen to appreciate, that doesn't mean the Japanese (or some other) government won't intervene in order to improve their trade balance. The mechanism that the Chinese government uses to keep the Yuan pegged to the USD, is the purchase of U.S. treasuries[2]. Here is some additional info: http://fpc.state.gov/documents/organization/65773.pdf http://fpc.state.gov/documents/organization/65773.pdf http://www.nakedcapitalism.com/2010/03/on-chinas-currency-peg-and-potential-policy-actions.html http://www.nakedcapitalism.com/2010/03/on-chinas-currency-pe... -------------------- [1] http://en.wikipedia.org/wiki/Fixed_exchange_rate_system#Mechanism http://en.wikipedia.org/wiki/Fixed_exchange_rate_system#Mech... [2] http://www.treasury.gov/press-center/press-releases/Pages/js774.aspx http://www.treasury.gov/press-center/press-releases/Pages/js...