Countries around the world keep their currencies pegged to the U.S. dollar, but how is this balance maintained? We saw in a previous video how a floating exchange rate can significantly affect international trade, but how is this achieved? It’s a simple case of supply and demand, says Salman Khan of the Khan Academy. Learn how the Chinese Central Bank has traditionally pegged the Yuan to the dollar, and in the process maintained a trade imbalance.
From this video, you’ll understand:
- The mechanics of pegging currency
- The relationship between currency pegs and trade
- How a country like China can keep its currency undervalued