In the last video, we saw that China had increased its M1 money supply
from November of 2009 to November of 2010 by roughly 700 billion dollars.
What I want to do in this video is compare that to increase in foreign assets.
So we move up here once again.
All of this data is straight from the website of the people's bank of China.
And this is the URL right over here.
And your can get from multiple years that have tons of other statistics.
And so this chart tells us their foreign assets and foreign exchange.
Now I'm just gonna to focus on foreign assets because when they print currency and say
with their printed yuan, they go buy dollars.
With that dollars we could buy, or they could keep it in dollars
or they could buy treasury bonds or they could just go buy US assets.
So assets are the best measure of what they are holding
that is denominated in other currencies.
So let's look at their growth from November of 2009 to November of 2010.
This is why I pick November because we don't have December of 2010 in this chart.
So foreign assets, once again this is in hundred million yuan.
Foreign assets in November 2009,
183,651 and that's in hundred million yuan.
And you fast forward to November 2010, it is 212,733.
So let's once again put that in terms that make a little more sense at least for someone who is used to dollars.
So I will use a very rough approximation for the US.
Yuan exchanges in last years, that's close to 6.58 now.
But it gets to about 700 billion dollars increase in money supply
that we get in last video. So let's check this out.
So we end up at 212,733 hundred million yuan in foreign assets
November 2010 minus 183,651 so that is the difference.
And this is in hundred million yuan. So let's multiply by a hundred.
So this will be million yuan. Now we divide this by 1,000. This will give us billion yuan.
It's actually close to 2900 billion yuan. So it's almost 3 trillion yuan.
If we want to convert this into dollar, I should choose the same 6.5.
I can do 6.58. Let me just do 6.58. So divide it by 6.58 to put it into billions of US dollars.
So you see there is a 440 billion increase in foreign assets when demoninated in dollars.
So let's think about that. Let's think about this. M1 from November 2009 to November 2010,
M1 was up by approximately 700 billion dollars,
and foreign assets were up approximately, what was the number I just typed there?
Approximately 440 billion.
So most the expansion of the monetary base, of their M1 base,
was to go out to buy foreign assets over the course of 2010.
And the balances really just kind of support the growth of actual Chinese economy
with most of it is to go out there buy foreign assets in other currencies.
And actually help keep the yuan devalued. This is Salman Khan of the Khan Academy for CNBC.
Log in to save your progress and obtain a certificate in Alison’s free Modern Economics online course
Sign up to save your progress and obtain a certificate in Alison’s free Modern Economics online course
Please enter you email address and we will mail you a link to reset your password.