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PRC regularly devalues its currency to promote export. On the other hand, Turkey is worried about the plummet of its currency.

Why two outcomes in the same type of case?

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    @grovkin There are other (related) factor e.g. one exports more than it imports, the other doesn't. Should an answer here target the political, rather than economic reasons, or would this be more appropriate on economics.SE? – origimbo Aug 14 '18 at 21:25
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    @origimbo: I think it's an ok question here since in both cases the changes get the politicians talking (quite a bit). China was often accused [by US politicians] of manipulating its currency; Erdogan declared the lira was under some kind of foreign assault etc. Also in in both countries the independence of their central bank etc. isn't too clear. We had a question here about Turkey that amounted to that politics.stackexchange.com/questions/32856/…. For China bloomberg.com/view/articles/2018-03-11/… – Fizz Aug 14 '18 at 21:59
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    What exactly does "manipulating currency" mean, and is there any reasonable definition that does not apply to every single country with it's own currency? If China is devaluing, then what is the correct value of the RMB? – boileau Aug 15 '18 at 8:46
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Trade surplus/deficit

Devaluing one's currency means mostly one thing: It becomes more expensive to import products from abroad, while one's own products become comparably cheaper to buy on the world market. That means a country which exports lots of goods wants to devalue their currency while a country which imports lots of goods does not.

In 2016, Turkey imported goods worth US $186 billion and exported goods worth US $156 billion. That means they had a trade deficit of 19%.

However, China only imported goods worth US $1.23 trillion and exported goods worth US $2.27 trillion in 2016. That means they had a trade surplus of 84%.

Which is why China wants to devalue their currency while Turkey does not.

Debt management

Another reason to devalue one's currency is that it reduces any debts denoted in that currency. If a country has a problem of too much public and private debt, then an easy way to get rid of it is to cause a hyperinflation.

China happens to have a debt-to-gdp ratio of 47.6% while Turkey only has one of 28.3%. When you look at the private debt (debt of private citizens and companies in the country), you see the same picture. Private debit in Turkey was 170% of GDP, while China's is rumored to be over 300%.

Which is why reducing debt through causing inflation seems more attractive to China than to Turkey.

Foreign investor relations

So why don't all countries get rid of their debt by adding a few zeroes to their bank notes? Because inflating your currency is a surefire way to drive away any foreign investors. Nobody will invest money into your country when that money might be worth nothing in a few years. Investors want stable currencies. Again, we observe the same difference in motivation between Turkey and China here. Turkey is actively inviting foreign investors, but China is quite reluctant to allow foreign economic influence in their country.

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    I upvoted, but foreign direct investments [FDIs] in China have been substantial. See the table in politics.stackexchange.com/a/32734/18373 for instance. I think the last Bloomberg article you link talks about state-owned stuff, i.e. privatization of "sensitive" industries. China has indeeded not done much of that, or at least not let foreigners invest in those those sectors. – Fizz Aug 14 '18 at 22:06
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    And the theory is a bit more complicated, i.e. the Marshall–Lerner condition (found via econ.SE): "an exchange rate devaluation or depreciation will only cause a balance of trade improvement if the absolute sum of the long-term export and import demand elasticities is greater than unity." I don't know how well validated that is in practice. – Fizz Aug 15 '18 at 3:50
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    Do you have any information on how much of the debt in Turkey and China is in local currency and not USD or EUR? – janh Aug 15 '18 at 10:49
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    @R.Schmitz A contract is a contract. When we have a contract that I pay you 1 million turkish lira today and in exchange you pay me 2 million lira in 10 years, you pay me 2 million lira in 10 years, even if the turkish lira has inflated so much at that point that it's now the equivalent to a pack of bubble gum. Loan contracts usually do not have an "inflation" clause. They have a fixed interest rate or are bound at the interest rate of the central bank, which might or might not care about inflation. So a loan is always also a bet on how the currency will develop in the next years. – Philipp Aug 15 '18 at 13:52
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    "an easy way to get rid of [the debt] is to cause a hyperinflation." One important caveat to this: it only works if the debt is denominated in the debtor country's currency. If it's denominated in another currency (U.S. Dollars and Euros are commonly used, for example,) then it won't work. – reirab Aug 15 '18 at 18:00
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The People's Republic of China has pursued an export led economy. As a result, it sends away its good and services without getting equivalent value in return. I.e. it has a trade surplus. It believes that this is desirable.

Turkey's problem is more fundamental. It has inflation issues. As a result of those inflation issues, its currency is falling. Because that's what inflation means, the currency is becoming less and less valuable in objective terms. This may encourage exports, which has questionable value. It certainly discourages any type of investment activity that relies on receiving future money in exchange for more valuable current money.

Why work a job where you won't get paid for a week but your money will be worth less at the end of the week? Why invest in a business where you have to pay out valuable current money for less valuable money in the future? That's one thing with inventory, where the inventory will increase in nominal value. But what about automation, maintenance, and labor?

Businesses in Turkey that do export would likely prefer to get paid in foreign currency. They can then invest that foreign currency in more stable economies. So rather than rising because of the cheaper currency, exports fall over time. Because the businesses export without repatriating the money to buy supplies to export again. This increases the goods shortage (as they'd rather export than sell domestically). A shortage of goods causes inflation.

To improve exports by devaluing the currency, it is necessary to have stable domestic prices. You can't devalue your way out of hyperinflation.

Even if we assume that increased exports benefits the economy (questionable), the damage from inflation is greater. And inflation causes a decrease in exports, as it discourages investment.

TL;DR: the damage from inflation is more than any possible benefit from improved exports.

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TL;DR: Your premise is faulty. China does not "regularly devalue their currency". The value in US dollar terms has been remarkably stable, and in terms of other currencies (which, in total, represent significantly bigger markets than the US) their currency has been appreciating.

In the past 10 years the CNY-USD rate has remained within about a +/-6% range, the EUR has changed more than double that amount (mostly downward from 2010).

(all charts from https://www.xe.com/)

enter image description here

The CNY was pegged to the dollar prior to 2010 and the exchange is now tied more closely to a basket of currencies which includes the Euro and USD.

In comparison to the Euro (a larger market than the US for Chinese goods), the chart looks like this:

enter image description here

By comparison, a currency which does have a one-way chart is INR-USD (Indian rupee). It has gone from 43 to the dollar to about 70 to the dollar.

enter image description here

It's not clear that the dropping value of the INR is much help for promoting exports in the case of India. Historically, India has inflation in the 5% range and China has inflation in the 2% range, not by coincidence similar to the US, reflecting similar economic policies.


China in the long term wishes to promote more use of their currency in international transactions, and having a currency that is unstable in relation to the EUR, JPY, USD etc. would work against that.

For example, they have established commodity bourses that price in CNY and are loaning money (a few billion to Turkey) in CNY.

Turkey does very little (~5%) trade with the US, mostly with China, Russia and the EU.


As far as the relative value of the US dollar vs. the Turkish currency, confidence is a big factor. If a holder of a fiat currency suspects the entity that controls it will inflate their way out of debt or default on the debt they will look to reduce their risk (selling the currency and decreasing the value).

Inflation in the US is currently around 2% a year, and default is considered very unlikely, so it is preferable to a currency with 15% inflation a year and a perceived high risk of default, even when the government offers interest rates approaching 20%. This was not always true, and some of us remember double digit US interest rates, and plunging currency values, but these things are relative. If all other things are equal, then interest rates will allow the exchange rates to be moved up and down, but things are anything but in this comparison.

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    An exchange rate can be actually stable BECAUSE of active active intervention and money printing. See CZK vs EUR in 2014 and 2015. The rate was kept spot on 27 CZK/EUR by the national bank interventions and printing CZK. – Vladimir F Aug 16 '18 at 6:29
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You can't really compare the two, because China and Turkey have completely different monetary systems, and completely different economic problems.

China is a very unusual case, in that they have tied the value of their currency to the dollar. Effectively, that means their currency is the dollar, just with a different name and denominations.

The problem this causes for them is that this means their monetary policy is effectively run by The Fed in the USA, whose chief concern is helping the US economy, not China's. For example, if the dollar gets super strong (gains value compared to other currencies), that might be a minor but not huge concern for the US. However, it could be deadly to a country that lives on exports like China, when they have to pay workers with their dollar-tied currency, but export what they make to countries where that amount is a much bigger amount of money. Effectively, the stronger the dollar gets, the more expensive Chinese exports are (to countries that don't use the dollar).

It also annoys the US, as China's economy is now so large that its having real effects on the value of the Dollar, which is not always to the benefit of the US. They are basically mooching off the strength of the Dollar.

So periodically China will (by government decree) devalue their currency against the dollar. This makes their exports more competitive, and lessens the pressure their market exerts on the dollar's value.

Turkey, like most modern countries, allows the value of their currency to float. This means its value relative to other currencies freely fluctuates with market forces. In practice, that tends to mean its value will go up or down based on investor perceptions of the strength of the country's economy and the stability of its government. Both have not looked too good (in the opinions of the class of people who invest in such things) since about 2008, so it has naturally been in free-fall. Right now its worth a bit more than half the dollars it was worth a year ago, and that was half what it was worth in 2012. This makes critical imports (eg: food, fuel) cost twice what they did before. That's going to make pretty much everyone in that country who isn't wealthy more than a little cranky.

  • "periodically China will" - over what timescale? Spehro's answer includes a graph going back to 2009 which doesn't show that. – Martin Bonner Aug 16 '18 at 10:40
  • @MartinBonner - Notice that straight line down on his graph in 2015? Looks a bit odd, doesn't it? – T.E.D. Aug 16 '18 at 12:55
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A side effect of devaluing your currency is you also devalue your entire country's assets (they become cheaper for another currency to buy), but as China does not allow foreign investors to buy property - at least not directly - it doesn't have a huge implication.

  • This is already covered in more detail in Phillip's answer, isn't it? – zibadawa timmy Aug 16 '18 at 3:56
  • @zibadawatimmy I don't think so. Phillip's answer dealt with investor's desire for stability. This is about the fact that companies, real estate etc that are valued in your local currency become cheaper to buy for foreign investors. Countries usually do take precautions to control the sale of key industries to foreign investors. – janh Aug 16 '18 at 6:32

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