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Data on Chinese M1 increase in 2010

Data on Chinese M1 Increase in 2010. Created by Sal Khan.

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  • leaf green style avatar for user rwrae72
    If they increase the money supply (M1) to buy dollars, does the amount used to buy dollars then come out of the M1 figure?
    (3 votes)
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    • mr pants teal style avatar for user Wrath Of Academy
      Well I think it would be better to say China's bank increases M0, and as a consequence M1 rises. If the new M1 is converted to another currency though, there has to be someone on the other side paying dollars to buy Yuan. So someone that used to own dollars now owns the new Yuan, so they don't disappear from M1. The new Yuan are still in a bank somewhere, or turned into paper.
      (3 votes)
  • leaf green style avatar for user Zaphod Beeblebrox
    So when people talk about China having some $3 trillion in reserves, they are talking about foreign exchange reserves and they are counting the amount of bonds they hold not actual foreign currency?

    So in the case of USD reserves they hold, are they talking about bonds or simply USD? Does anyone know?
    (2 votes)
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  • aqualine seed style avatar for user K B
    Why M1 money is taken into account when actual money printed by central bank is described by M0 money?
    (2 votes)
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  • male robot hal style avatar for user Benjamite
    Why does Sal calculate the increase in M1?
    Does'nt the increase in currecy (M0) give a more accurate picture as that is what the PBC is printing and that is what is exchanged for dollars?
    (1 vote)
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    • blobby green style avatar for user Michael Bihari
      I'm guessing that the dollars were already in China. They bought the dollars off a manufacturer in China that got the dollars from US. This way it becomes M1. They wrote a cheque to the manufacturer and the money is in the bank.
      My guess is the $US might be M0, but maybe they can get out of that too somehow.
      (1 vote)

Video transcript

We've talked a good bit about how the Chinese government is printing yuan to buy a foreign exchange to keep the yuan devalued. But what I want to do in this video is actually look at the data and show you that I wasn't making all of that stuff up. So this is actually data from the People's Bank of China. This is directly from their website. And right over here, this is the 2010 money supply. This is the 2009 money supply. You can get any money supply, any year that you want, from their site. And what we could do is just look at what happened over just even 2010, or from a same point in '09 to '10. Let me take November '09 to November '10, and I'll look at their M1 money supply. I'll look at their M1 money supply. I'm going from November to November because we'll see some of the other charts, we actually have data for there. We don't have December to December for some of the other charts I'm going to use in this video. But it just gives the general idea. If you go from November of 2009, the M1 money supply, now this is in hundred million yuan. So there was a 212,493 hundred million yuan. And we'll try to convert these into numbers that make a little bit more sense. And then you fast forward to November of 2010, the M1 is 259,420 hundred million yuan. So if we-- let's get a calculator out and actually make some sense of that. So a year later, it's at 259,420 and from that let's subtract what it was before, 212,493. So the difference is 46,927. Now this is in hundred million yuan. So if you wanted it in million yuan, you want to multiply by 100. I think it's pronounced "you-wen" or "you-won." I'm not a Chinese pronunciation expert. This is in millions of yuan. And now if we wanted it in billions we can divide this by 1,000. So let's divide this by 1,000. So it's roughly 4.6, 4.7 trillion yuan increase in their M1 money supply from November, 2009 to November, 2010. Sort of a pretty dramatic increase. And just so you could put this in the scope of dollars I'll use a rough approximation for the current exchange rate, 6.5 yuan per dollar. So let me just divide that by 6.5 to get a rough approximation for what that would be in dollars. And we get $721-- remember this was in billions-- so we're actually $722 billion expansion in the M1 money supply of China from November, 2009 to November, 2010. In the next video, we're going to see how this compares to the actual increase in foreign exchange, or actually foreign assets. And we can see how much of this was actually just to go and go buy things from other countries, or buy foreign exchange from other current countries, and essentially to keep the Chinese yuan devalued. This is Salman Khan of the Khan Academy for CNBC.