What is currency manipulation, and how does it work?

I keep seeing this in the headlines, but none of the articles go into specifics about how it works. Please give me a detailed explanation of what currency manipulation is, preferably with easy to understand examples.





P.S. I have never taken economy, so please explain as you would to a child.|||Well, 1st off, practically all nations manipulate their currency in some form. In the US when you hear about the government borrowing money, it does not go to a lender like you do. The USA "issues debt" The Treasury creates securities (mostly government bonds) they sell to investors. The Federal Reserve then increases or decreases the money supply by buying (or selling) existing bonds in open market operations. They do not buy directly from the Treasury, as some people suggest, as that would be viewed a printing the debt.



Most countries like the U.S., allow their currency to float on the open market. Investors (through faith and confidence in a nations ability to pay it's obligations) determine the value of the currency.mainly, indirectly, by how much debt they are willing to hold in government bonds.



When one nations currency is worth less, or valued less then another, that makes the same products made in the country with the weaker currency, cost less than products made in the country with the stronger currency.



China attaches it's currency (Yuan) to the Dollar, rather than letting the free market determine it;s value. So regardless, the Yuan is always valued less then the Dollar, and at fluctuates at the same rate. Which makes products made in China always cost less to buy than the same products made in America. They then take most of the surplus Dollars the trade imbalance creates for them, and buy U.S Treasury bonds, which keeps the Dollar stronger, and likewise the Yuan strong, yet still undervalued compared to the Dollar



China can do it because they can, to a degree, control what foreign currencies their citizens can own. The U.S. cannot control what foreign currencies it's citizens invest in.