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Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:01.41,0:00:04.75,Default,,0000,0000,0000,,Now let's consider the topic \Nof currency manipulation.
Dialogue: 0,0:00:04.75,0:00:06.93,Default,,0000,0000,0000,,That's somewhat of an inflammatory name,
Dialogue: 0,0:00:06.93,0:00:10.68,Default,,0000,0000,0000,,you'll also hear this often called\Ncurrency intervention.
Dialogue: 0,0:00:12.28,0:00:14.85,Default,,0000,0000,0000,,The most common case \Nof currency manipulation
Dialogue: 0,0:00:14.85,0:00:15.84,Default,,0000,0000,0000,,or intervention,
Dialogue: 0,0:00:15.84,0:00:19.49,Default,,0000,0000,0000,,is when a country tries to hold down\Nthe value of its currency,
Dialogue: 0,0:00:19.49,0:00:22.05,Default,,0000,0000,0000,,and they will do that by \Nbuying and selling
Dialogue: 0,0:00:22.05,0:00:24.73,Default,,0000,0000,0000,,foreign exchange in global markets.
Dialogue: 0,0:00:26.23,0:00:28.31,Default,,0000,0000,0000,,There are a few different ways \Nwe can draw this,
Dialogue: 0,0:00:28.31,0:00:31.55,Default,,0000,0000,0000,,but let's say we have a demand curve\Nfor a currency,
Dialogue: 0,0:00:31.55,0:00:33.62,Default,,0000,0000,0000,,and a fixed supply curve.
Dialogue: 0,0:00:33.62,0:00:37.19,Default,,0000,0000,0000,,On the vertical axis, we have \Nthe exchange rate for that currency,
Dialogue: 0,0:00:37.19,0:00:40.29,Default,,0000,0000,0000,,and on the horizontal axis,\Nwe have the quantity.
Dialogue: 0,0:00:40.29,0:00:44.29,Default,,0000,0000,0000,,What a central bank can do is \Nincrease the quantity of that money
Dialogue: 0,0:00:44.29,0:00:49.07,Default,,0000,0000,0000,,therefore, shifting out the supply curve\Nwill have a new point of intersection
Dialogue: 0,0:00:49.07,0:00:52.11,Default,,0000,0000,0000,,and that will mean a lower exchange rate.
Dialogue: 0,0:00:52.11,0:00:55.28,Default,,0000,0000,0000,,Keep in mind that if the central bank \Nis taking that new money
Dialogue: 0,0:00:55.28,0:00:57.59,Default,,0000,0000,0000,,and using it to buy foreign currency,
Dialogue: 0,0:00:57.59,0:01:00.93,Default,,0000,0000,0000,,you can also show in the market \Nfor that foreign currency
Dialogue: 0,0:01:00.93,0:01:03.29,Default,,0000,0000,0000,,that the demand for that currency \Nis going up,
Dialogue: 0,0:01:03.29,0:01:05.95,Default,,0000,0000,0000,,and the exchange rate \Nfor the other currency is going up,
Dialogue: 0,0:01:05.95,0:01:09.05,Default,,0000,0000,0000,,and thus again, the exchange rate \Nfor the domestic currency
Dialogue: 0,0:01:09.05,0:01:10.79,Default,,0000,0000,0000,,is going down.
Dialogue: 0,0:01:12.52,0:01:16.12,Default,,0000,0000,0000,,So why would a country want to lower \Nits exchange rate in this fashion?
Dialogue: 0,0:01:16.12,0:01:19.07,Default,,0000,0000,0000,,Well, the immediate impact \Nof the lower exchange rate
Dialogue: 0,0:01:19.07,0:01:22.85,Default,,0000,0000,0000,,is to make exports of that country\Ncheaper on world markets.
Dialogue: 0,0:01:22.85,0:01:26.17,Default,,0000,0000,0000,,And the goal very often is\Nto lower the exchange rate,
Dialogue: 0,0:01:26.17,0:01:30.80,Default,,0000,0000,0000,,boost those exports, and in the longer run\Nboost rates of economic growth.
Dialogue: 0,0:01:30.81,0:01:34.36,Default,,0000,0000,0000,,Think of this as an export-led \Ndevelopment strategy
Dialogue: 0,0:01:34.36,0:01:39.22,Default,,0000,0000,0000,,and it is partially implemented by\Ncurrency intervention or manipulation.
Dialogue: 0,0:01:40.22,0:01:43.52,Default,,0000,0000,0000,,Of course, currency manipulation \Ndoes not create new wealth,
Dialogue: 0,0:01:43.52,0:01:45.49,Default,,0000,0000,0000,,but rather, it's redistributing wealth.
Dialogue: 0,0:01:45.49,0:01:48.57,Default,,0000,0000,0000,,It's an implicit subsidy \Nto business exporters
Dialogue: 0,0:01:48.57,0:01:52.04,Default,,0000,0000,0000,,and an implicit tax on consumers \Nwho are buying importers.
Dialogue: 0,0:01:52.04,0:01:54.67,Default,,0000,0000,0000,,One way to think about \Nhow this might possibly work,
Dialogue: 0,0:01:54.67,0:01:58.67,Default,,0000,0000,0000,,is to imagine an economy where \Nyou need a more commercial,
Dialogue: 0,0:01:58.67,0:02:01.87,Default,,0000,0000,0000,,or more business-oriented \Nset of interest groups,
Dialogue: 0,0:02:01.87,0:02:05.10,Default,,0000,0000,0000,,and that initially by subsidizing \Nsome of your exporters,
Dialogue: 0,0:02:05.10,0:02:08.64,Default,,0000,0000,0000,,even though that's inefficient \Nin a lot of standard economic models,
Dialogue: 0,0:02:08.64,0:02:10.96,Default,,0000,0000,0000,,what you might be doing \Nis growing your middle class,
Dialogue: 0,0:02:10.96,0:02:13.56,Default,,0000,0000,0000,,growing your commercial class, \Nand over time,
Dialogue: 0,0:02:13.56,0:02:16.40,Default,,0000,0000,0000,,this might give you \Na better economic policy.
Dialogue: 0,0:02:17.94,0:02:20.64,Default,,0000,0000,0000,,That maybe sounds a little strange \Nbut if we look at history,
Dialogue: 0,0:02:20.64,0:02:23.40,Default,,0000,0000,0000,,we do actually find \Na few cases where it seems
Dialogue: 0,0:02:23.40,0:02:24.99,Default,,0000,0000,0000,,this has definitely worked.
Dialogue: 0,0:02:24.99,0:02:29.35,Default,,0000,0000,0000,,And those cases would be Japan, \NSouth Korea, and also China.
Dialogue: 0,0:02:29.35,0:02:33.54,Default,,0000,0000,0000,,Those are countries which deliberately \Nkept their exchange rates low,
Dialogue: 0,0:02:33.54,0:02:37.29,Default,,0000,0000,0000,,this helped their export-led growth, \Nand overtime those countries
Dialogue: 0,0:02:37.29,0:02:39.35,Default,,0000,0000,0000,,became much wealthier.
Dialogue: 0,0:02:40.72,0:02:43.26,Default,,0000,0000,0000,,Of course, it's not really \Nas simple as all that.
Dialogue: 0,0:02:43.26,0:02:47.37,Default,,0000,0000,0000,,The initial decline of the exchange rate \Nthrough currency intervention
Dialogue: 0,0:02:47.37,0:02:50.43,Default,,0000,0000,0000,,means that there's more \Nof the domestic currency out there.
Dialogue: 0,0:02:50.43,0:02:54.40,Default,,0000,0000,0000,,Over time, this tends to push up prices \Nin the domestic country
Dialogue: 0,0:02:54.40,0:02:57.58,Default,,0000,0000,0000,,and that means that over time, \Nthat country tends to lose
Dialogue: 0,0:02:57.58,0:03:01.70,Default,,0000,0000,0000,,it's initial exchange rate advantage \Nfrom the currency manipulation.
Dialogue: 0,0:03:02.06,0:03:04.48,Default,,0000,0000,0000,,For more on exactly \Nhow this process works
Dialogue: 0,0:03:04.48,0:03:08.45,Default,,0000,0000,0000,,see a video on nominal \Nverses real exchange rates.
Dialogue: 0,0:03:09.90,0:03:14.56,Default,,0000,0000,0000,,Sometimes governments or central banks \Nengage in what is called sterilization
Dialogue: 0,0:03:14.56,0:03:17.55,Default,,0000,0000,0000,,to prevent this new inflation \Nfrom coming into effect.
Dialogue: 0,0:03:17.55,0:03:21.39,Default,,0000,0000,0000,,So, if we see here that a government \Nincreases the money supply,
Dialogue: 0,0:03:21.39,0:03:24.31,Default,,0000,0000,0000,,for the purposes of manipulating \Nan exchange rate,
Dialogue: 0,0:03:24.31,0:03:27.73,Default,,0000,0000,0000,,to limit the inflation, the government \Nhas to pull that new money
Dialogue: 0,0:03:27.73,0:03:30.81,Default,,0000,0000,0000,,back out of the market\Nand they will do that basically
Dialogue: 0,0:03:30.81,0:03:33.28,Default,,0000,0000,0000,,by selling bonds \Nor some other asset
Dialogue: 0,0:03:33.28,0:03:36.62,Default,,0000,0000,0000,,thus bringing the money supply \Nback to it's initial level,
Dialogue: 0,0:03:36.62,0:03:38.92,Default,,0000,0000,0000,,and indeed, if you sterilize \Nin this fashion
Dialogue: 0,0:03:38.92,0:03:41.33,Default,,0000,0000,0000,,it means the inflation \Nwill not happen.
Dialogue: 0,0:03:41.33,0:03:42.99,Default,,0000,0000,0000,,But think, what are you doing here? \N
Dialogue: 0,0:03:42.99,0:03:45.96,Default,,0000,0000,0000,,By selling more bonds,\Nthe government is borrowing money.
Dialogue: 0,0:03:45.96,0:03:48.41,Default,,0000,0000,0000,,This pulls resources out \Nof the real economy.
Dialogue: 0,0:03:48.41,0:03:50.98,Default,,0000,0000,0000,,It means higher taxes \Neither now or later,
Dialogue: 0,0:03:50.98,0:03:53.74,Default,,0000,0000,0000,,and this means, \Nthat currency sterilization \N
Dialogue: 0,0:03:53.74,0:03:56.63,Default,,0000,0000,0000,,imposes a very real burden \Non the citizenry
Dialogue: 0,0:03:56.63,0:04:00.80,Default,,0000,0000,0000,,in terms of fewer real goods \Nand services in the economy.
Dialogue: 0,0:04:02.48,0:04:04.97,Default,,0000,0000,0000,,So, does manipulating \Nthe real exchange rate
Dialogue: 0,0:04:04.97,0:04:08.48,Default,,0000,0000,0000,,in this entire manner actually work?\NWell, it depends.
Dialogue: 0,0:04:08.48,0:04:12.29,Default,,0000,0000,0000,,What you're getting is a situation \Nwhere imports are more expensive,
Dialogue: 0,0:04:12.29,0:04:14.24,Default,,0000,0000,0000,,that's a burden on citizens.
Dialogue: 0,0:04:14.24,0:04:18.76,Default,,0000,0000,0000,,You're redistributing resources to your \Ncorporate sector and your exporters,
Dialogue: 0,0:04:18.76,0:04:22.44,Default,,0000,0000,0000,,and basically, I would say,\Nthat this strategy is dubious
Dialogue: 0,0:04:22.44,0:04:26.17,Default,,0000,0000,0000,,unless it's going to be accompanied \Nby some kind of growth miracle.
Dialogue: 0,0:04:26.17,0:04:30.07,Default,,0000,0000,0000,,So, definitely it has worked for Japan, \NSouth Korea and China,
Dialogue: 0,0:04:30.07,0:04:32.53,Default,,0000,0000,0000,,but that doesn't mean \Nit's a general formula
Dialogue: 0,0:04:32.53,0:04:35.95,Default,,0000,0000,0000,,by which countries can become \Nmore prosperous.
Dialogue: 0,0:04:37.47,0:04:40.03,Default,,0000,0000,0000,,For more on this topic \NI recommend first of all,
Dialogue: 0,0:04:40.03,0:04:42.44,Default,,0000,0000,0000,,are videos on real and nominal \Nexchange rates,
Dialogue: 0,0:04:42.44,0:04:46.41,Default,,0000,0000,0000,,and also are specific video \Non Chinese currency manipulation.
Dialogue: 0,0:04:46.41,0:04:50.37,Default,,0000,0000,0000,,There's a good piece by Sarno and Taylor \Navailable online.
Dialogue: 0,0:04:50.37,0:04:54.31,Default,,0000,0000,0000,,You can also Google \Nsome related topics listed here
Dialogue: 0,0:04:54.31,0:04:56.69,Default,,0000,0000,0000,,and see also Danny Rodriks piece,
Dialogue: 0,0:04:56.69,0:05:00.01,Default,,0000,0000,0000,,"The real exchange rate \Nand economic growth."