The original purpose of a currency is to facilitate exchange between parties. Exchange can happen without currency, but it is more time-consuming and complex, because both parties have to know what the value of the exchange is and agree to deliver on it. Currency today however is not about exchange but about influence. Influence refers to currency on a macro scale, where countries use their currency to get an advantage over another country. This is like saying “my way of exchanging is better than yours”. By having a “better currency”, you will get more favourable trade rules, more economic growth, more prosperity and more leverage when it comes to attracting business and production. Where is the evidence of this influence? There are some assumptions being made about what is important for an economy. The first one is that trade is always better than no trade. The idea of creating things from your own resources seems to be a dying art, but isn’t this where you get the value to begin trading? The second assumption is that a weaker currency is better than a strong one. This was not always the case as the U.S. once had a “strong dollar policy”. (5)(6) Is China doing the same thing when allowing the Yuan to appreciate? China has become one of the world’s big buyers of many things – why not do it with a stronger currency and pay less for what you need? This is the author’s speculation, but time will tell if this is really the intention. A weak currency means that you would use more units of that currency for the same amount of value. A strong currency needs fewer units to obtain the same value. This is analogous to the quality versus quantity argument and the inflation verses deflation argument. Currently, inflation is preferred to deflation, and quantity is preferred to quality. If you want evidence of these trends, look at the consumer spending mantra, cheap outsourced goods being preferred, the emphasis on volume of production, and the deflation bogeyman and the tendency to print money to encourage inflation. (6)(7)(8)(9) The currency is a very important tool of influence. If you are able to stimulate your economy by lowering the value of your currency, you may not need to create real value in what you are producing. If you are a large buyer in world trade, the currency can be used to acquire more goods at a lower cost. Sources: 1) http://news.xinhuanet.com/english/world/2014-10/16/c_133719604.htm 2) http://www.bloomberg.com/news/2014-10-15/u-s-says-china-shows-some-willingness-to-let-yuan-rise.html 3) http://americasmarkets.usatoday.com/2014/06/12/senators-urge-obama-to-prohibit-chinese-currency-manipulation/ 4) http://www.washingtonpost.com/blogs/wonkblog/wp/2012/10/22/five-facts-you-need-to-know-about-chinas-currency-manipulation/ 5) http://www.economist.com/node/21564210 6) http://www.voxeu.org/article/strong-dollar-policy-us 7) http://www.nytimes.com/2013/02/17/business/global/group-of-20-pledges-to-let-markets-set-currency-values.html?_r=0 8) http://www.reuters.com/article/2013/02/15/us-g20-currency-idUSBRE91E00520130215 9) http://www.bloomberg.com/news/2013-02-16/g-20-pleges-not-to-target-exchange-rates-to-aid-economies.html