disccusion question #1

theconspirator said:

1. Why does the Chinese Central Bank possess over $3 trillion of foreign exchange reserves?
2. What does the Chinese Central Bank do with the vast majority of the money it earns from the sale of its exports that it does NOT spend on US goods? Why not keep this money in cash?
3. Why does the Chinese Central Bank manage the value of its currency, the RMB? Why not let the exchange rate be determined by the free market?
4. As the RMB is slowly strengthened against the dollar, who are the winners and losers? What impact should a stronger RMB have on the balance of trade between China and the US?

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We are druggies and china is our drug dealer (we can't get our hands off Chinese products because the labor is cheap- this makes the product cheaper -and the ease in which we get it out of the country is fantastic.) the reason they keep the RMB so low is so they can keep this ease of export and cheap labor.

theconspirator said:

1. Why does the Chinese Central Bank possess over $3 trillion of foreign exchange reserves?

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1. 
   To store its money in a more diversified and less risky portfolio. Same reason why so many countries us the USD as a reserve. China has a lot of holding so they have notable holdings of other currencies too (I didn't know it was $3 trillion, but I know they have just under $1 trillion of that in USD).
   
   

   theconspirator said:

   [*]What does the Chinese Central Bank do with the vast majority of the money it earns from the sale of its exports that it does NOT spend on US goods? Why not keep this money in cash?

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   What do you mean by sale of exports? And the reserves you mentioned above are essentially like cash- they are extremely liquid treasuries.
   
   

   theconspirator said:

   [*]Why does the Chinese Central Bank manage the value of its currency, the RMB? Why not let the exchange rate be determined by the free market?

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   A lot of reasons here and it is arguable. One reason might certainly be to impact exports.
   
   

   theconspirator said:

   [*]As the RMB is slowly strengthened against the dollar, who are the winners and losers? What impact should a stronger RMB have on the balance of trade between China and the US?

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Another loaded question, but it really depends. There are winners and losers on both sides and it varies from the short to the long term. It is also often arguable.