Nerdy today! Practising for my upcoming political economy exam too. -,- Alert: may be boring and not understandable to some.

I just realised that both China and US are actually doing the same thing. Just in a different way. =.= What have I been doing in class for the past 13 weeks for my political economy class? :S

China and US are both trying to devalue their currency.

There's the "Impossible Trinity" concept in economics, where it's impossible for any economy in the world to practice any of these three concurrently:
1. Fixed exchange rate
2. Free capital mobility
3. Independence in monetary policy.

US has picked option 2 and 3, whereas China has picked 1 and 3.

Both are trying to do the same thing - devalue their currency through increasing money supply. US does it through quantitative easing, or in other words, printing money. The Fed increases money supply to buy up government bonds.

China's central bank, with its fixed exchange rate policy, buys its foreign currency with the Renminbi it has to maintain its exchange rate with US within a fixed range. Yea, it allowed the Renminbi to float against the US beginning June this year, but the effect of the float is minimal. 3% increase since June. =.=

Another thing to note is that both countries are devaluing their currencies for different background reasons.
US needs its currency to be depreciated to allow their uncompetitive goods to compete at a competitive level. US needs its currency to be low to increase its exports, because that is the only plausible way out of the current situation its in. But I don't know how is that going to work, since the things that US has been traditionally good at is not progressing as fast as it used to. Technology, IPs, etc.

China needs their currency to be low to keep their competitive goods at a competitive level. Else the manufacturing based export industry will suffer losses to countries like Vietnam, Guatemala, or possibly Africa.

China has been frequently portrayed in the news as a country that keeps its currency artificially low, and thus labelled a currency manipulator. But in fact, US is doing the same thing as China, just in a more fashionable way - by printing money.