If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Main content
Current time:0:00Total duration:3:22

Video transcript

given that the chinese central brent bank is printing when in order to keep it devalued to other foreign currencies especially relative to the dollar a question that may have jumped into your brain is is this causing inflation and when i talk about inflation i'm talking about price inflation is it making a basket of goods in china more expensive and the other type of inflation that the word inflation is sometimes referring to is monetary inflation that by definition is increasing they are definitely increasing the money supply but is it making the price of goods and services in china more expensive and to answer that question i have this article here from the new york times written by keith bradsher early january 2011 and he writes in china consumer prices were 5.1 percent higher in november than a year earlier remember in the us we try to target inflation to be between one and three percent so the official government data so this is according to official government data they they admit that their inflation is at 5.1 percent but the next sentence is even more interesting and many economists say the official figures actually understate actually understate the rate of inflation which might in reality be twice as high and there's tons of ways to kind of engineer the actual inflation depending on what the basket of goods is and how you adjust for things now though that cheap currency policy seems to be reaching its limits the extra renminbi and this is a big point of confusion when people talk about the currency in china the renminbi is the name of is is the name of the currency while the when is kind of when someone talks about hey i gave you five when or you owe me five when something like they wouldn't say you owe me five renminbi and a good analogy is when you talk about if you go to if you go to great britain and you buy something they'll say oh it'll be five pounds so in great britain five pounds is what they say when you're actually buying something but the name of the currency is called the sterling is called the sterling it's kind of like if people call the dollar u.s legal tender that's the equivalent of renminbi while you win would be like the dollar so five pounds it's called the sterling so the similar analogy five u.n they call that the renminbi ren min b so they're saying the extra renminbi are feeding inflation that is starting to undermine exporters price competitiveness competitiveness just as a stronger renminbi would do if beijing was not intervening to begin with so the whole reason why they're printing this money is to keep the currency devalued but that's making things more expensive in terms of when so in the end that's kind of counteracting some of this cheap currency policy it's making their exports more expensive money supply figures for december which the central bank released on tuesday showed that cash and bank deposits were increasing at a rate twice as fast as even china's soaring economy so if you increase the money supply roughly in line with the growth in the economy then you wouldn't experience too much inflation but they're increasing it twice as fast ever more renminbi are available to buy goods and services so you see they're clearly doing that to try to keep their currency devalued but they're reaching kind of a it seems kind of a breaking point where they won't be able to do it as aggressively going forward