accusations toward other nations.

Currency manipulation.

A currency manipulator.

China is a currency manipulator.

But how can banknotes

like these, be manipulated?

Let's break it down.

One example of currency manipulation

is what a country might do when

it wants to minimize the effects of

having a strong currency.

Let's say for example,

that one U.S. dollar is equal to ten

dollars in the Republic of Monopoly

and with ten Monopoly dollars,

I can buy one cup of coffee

from the United States.

Now imagine that gradually inside the

Republic of Monopoly, the economy starts

doing very well and is extremely stable.

The currency naturally could rise

against all other currencies.

So now that one U.S. dollar only

earns you eight Monopoly dollars

instead of ten.

For me to buy that same cup of coffee

from the United States,

I only need to pay eight

Monopoly dollars.

So, it's cheaper for me.

So, this currency has become more valuable.

My citizens have more spending

power when they travel abroad and as a

country we have more buying power

when I want to import goods.

So, what's the problem?

Why manipulate?

Say I want to sell muffins to the U.S.

Instead of the U.S. paying me

one dollar like it used to,

it would now cost them $1.20,

all because my economy was

stronger and my currency is doing well.

No real change in taxes or monetary policy

and if I'm a large exporter and

shipping out more goods than I'm

bringing in, like China, this makes my

goods much less competitive.

In fact, you might even begin

buying from another country.

Hence, the urge to manipulate.

There is a number of other reasons a country

might choose to do this besides maintaining

competitiveness, including wanting to control

inflation or just maintain its

own financial stability.

China, is of course one of the most targeted

countries for currency manipulation.

When it devalues its currency,

it essentially wants to keep the cost of all

its goods and services less expensive

than other countries.

It's the world's second-biggest economy

after the U.S. but according to experts,

it actually hasn't been pushing down its currency

to benefit Chinese exporters

in years and even if it were,

there's a law which

requires the U.S. to spend a year

negotiating a solution before

it can retaliate.

President Trump recently backtracked

on his initial stance of

labeling China as a currency manipulator

but his accusations aren't

completely unfounded.

In 1994, the U.S. branded China

a currency manipulator.

Under the law, though labeling a country

as such can trigger an investigation

and require negotiations on

tariffs and trade.

China's yuan is becoming more

influential on the global scale.

It was recently added to the International

Monetary Fund's basket of reserve

currencies which are currencies deemed

safe, reliable, and freely used.

Joining the U.S. dollar, the euro, the yen,

and British pound.

In fact, it was the first time a new

currency was added since the euro

was launched in 1999.

The move positions China and its

currency as a global economic power,

which is why it's so important

for it to maintain that currency's credibility.