China's Giant Pool Of Dollars : Planet Money China's foreign-exchange reserves are worth over $3 trillion. That's a problem for China, and for the U.S.
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China's Giant Pool Of Dollars

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China's Giant Pool Of Dollars

China's Giant Pool Of Dollars

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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When some tourists go to China, they want to see the Great Wall or Forbidden City. When our Planet Money team went to China recently, they were excited to see China's Central Bank. Over the past the decade, the People's Bank of China has amassed an unbelievably large pile of U.S. dollars. Jacob Goldstein and David Kestenbaum explain how the pile got there and why it's a problem for China and the United States.

DAVID KESTENBAUM, BYLINE: We requested an interview at the People's Bank of China, but we didn't get one. So we did the second best thing.

JACOB GOLDSTEIN, BYLINE: A distant second.

KESTENBAUM: One cold night we went and stood outside the building on the streets of Beijing.

GOLDSTEIN: That is a giant pool of money.

KESTENBAUM: There it is.

GOLDSTEIN: How big is the giant pool of money these days?

Let me read to you from a document I have in my hand: From the People's Bank of China, conveniently published in English, the dramatic title Financial Statistics, Q1 through Q3, 2011. China's foreign exchange reserves stood at U.S. $3.2017 trillion.


GOLDSTEIN: Trillion dollars, right here. We're here. We made it.

KESTENBAUM: How did China get this giant pool of dollars? By selling so much stuff to the rest of the world, stuff like this.


GOLDSTEIN: Artificial wood flooring.

KESTENBAUM: Feels very solid.

GOLDSTEIN: Yeah, we're at a factory now on the outskirts of Shanghai.

KESTENBAUM: In front of us is a machine that's making - seeming out of nowhere - what looks like a very long plank of wood.

GOLDSTEIN: Rosalia Yang works for a company called the Zaonee Group. She sells this fake wood to buyers in the U.S. and Canada. People use it to build backyard decks. And Rosalia says customers buy it for all kinds of reasons.

ROSALIA YANG: So first, it's anti-termite.

KESTENBAUM: Anti-termite.

YANG: Anti-termite.

KESTENBAUM: Termites don't like to eat plastic.

YANG: No. (unintelligible) no. So it's great for California. And it's fire resistant. (Foreign language spoken)

GOLDSTEIN: There's one other big reason this flooring sells so well: it's cheap. And China's central bank, that building we stood outside of in Beijing, it's working to keep it cheap.

KESTENBAUM: The central bank does this, by keeping China's currency artificially weak. The world's other major currencies they trade on the open market, they go up and down. But in China, the central bank just says this is the exchange rate.

GOLDSTEIN: Keeping the currency weak helps every exporter in China. It helps them so much that China sells way more stuff to the rest of the world than it buys. This buying and selling, it happens in dollars. China has more dollars coming in than going out so, year after year, those dollars have been piling up at the Central Bank.

KESTENBAUM: This situation, it's not great for China or the United States. From the U.S. perspective, China's weak currency makes our goods more expensive in China. When you hear U.S. politicians complain about how China manipulates its currency, this is what they're talking about.

GOLDSTEIN: But the situation isn't great for China either. That huge pile of U.S. dollars, it makes China very dependent - too dependent even - on the health of the U.S. economy.

KESTENBAUM: Which may be why, over the last couple years, China has started to let its currency get stronger. For Rosalia and her colleague Jacki Jong, in the short-term, this is hard. It makes Chinese exports more expensive.

YANG: So that's mean I'm making much less.


JACKI JONG: That's very bad. We lost much.


GOLDSTEIN: So what does that mean for your business?

JONG: Oh, pain. Painful.


GOLDSTEIN: But a stronger Chinese currency does mean American stuff is now cheaper in China. And here, Rosalia says the words that every American manufacturer and politician wants to hear.

YANG: Actually we will love to buy products from U.S. We have seen what is happening in China, so we believe the market need to turn.

KESTENBAUM: They're not sure what they'll import - maybe medical devices. But if Rosalia is right, if the market does turn, that pile of dollars in China, it would stop growing. One day those dollars, they might even start coming back home.

I'm David Kestenbaum.

GOLDSTEIN: And I'm Jacob Goldstein, NPR News.


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