system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Why does China have such undervalued currency and Qatar have the most overvalued currency while both being highly export dependent economy?
gpt
When the United States went off the gold standard, the dollar basically replaced gold as the main asset in which foreign governments could hold their assets.

Dollar inflows from export sales are being converted into your currency, increasing its exchange rate. But by buying U.S. bonds or stocks, bid the price of dollars back up against your own currency. Let’s say you’re Germany, China or whoever. If you don’t recycle your dollar receipts back to the U.S. economy, your currency is going to go up. Dollar inflows from export sales are being converted into your currency, increasing its exchange rate. But by buying U.S. bonds or stocks, bid the price of dollars back up against your own currency.

So, when the United States runs a balance-of-payments deficit under conditions where other countries keep their foreign reserves in dollars, the effect is for other countries to keep their currencies’ exchange rates stable – mainly by lending to the U.S. government. That gives the United States a free ride. It can encircle the world with military bases, and the dollars that this costs are returned to the United States.

The U.S. position is, in effect, that we are not going to repay any foreign country the dollar debt we owe them. As Treasury Secretary John Connolly said, “It’s our dollars, but your problem.” Other countries have to pay us or else we’ll bomb them. The military dimension to this arrangement is the U.S. position that it would be an act of war if other countries don’t keep spending their export earnings on loans or U.S. stocks and bonds.

That’s what makes the United States the “exceptional country.” The value of our currency is based on other countries’ savings. The money they save has to be held in the form of dollars or securities that we’re never going to repay, even if we could.

This is a huge free ride. You’d think that Donald Trump would want to keep it going. But he claims that China is manipulating its currency by recycling its dollars into loans to the U.S. Treasury. What does he mean by that? China is earning a lot of dollars by exports its goods to the United States. What does it do with these dollars? It tried to do what America did with Europe and South America: It tried to buy American companies. But the United States blocked it from doing this, on specious national security grounds. The government claims that our national security would be threatened if China would buy a chain of filling stations, as it wanted to do in California. The United States thus has a double standard, claiming that it is threatened if China buys any company, but insisting on its right to buy out the commanding heights of foreign economies with its electronic dollar credit.

That leaves China with only one option: It can buy U.S. Treasury bonds, lending its export earnings to the U.S. Treasury.

China now realizes that the U.S. Treasury isn’t going to repay. Even if it wanted to recycle its export earnings into Treasury bonds or U.S. stocks and bonds or real estate, Donald Trump now is saying that he doesn’t want China to support the dollar’s exchange rate (and keep its own exchange rate down) by buying U.S. assets. We’re telling China not to do what we’ve told other countries to do for the past forty years: to buy U.S. securities. Trump accuses countries of artificial currency manipulation if they keep their foreign reserves in dollars. So he’s telling them, and specifically China, to get rid of their dollar holdings, not to buy dollars with their export earnings anymore.

So China is buying gold. Russia also is buying gold and much of the world is now in the process of reverting to the gold-exchange standard (meaning that gold is used to settle international payments imbalances, but is not connected to domestic money creation). Countries realize that there’s a great advantage of the gold-exchange standard: There’s only a limited amount of gold in the world’s central banks. This means that any country that wages war is going to run such a large balance-of-payments deficit that it’s going to lose its gold reserves. So reviving the role of gold may prevent any country, including the United States, from going to war and suffering a military deficit.

The irony is that Trump is breaking up America’s financial free ride – its policy of monetary imperialism – by telling counties to stop recycling their dollar inflows. They’ve got to de-dollarize their economies.

The effect is to make these economies independent of the United States. Trump already has announced that we won’t hire Chinese in our IT sectors or let Chinese study subjects at university that might enable them to rival us. So our economies are going to separate.

In effect, Trump has said that if we can’t win in a trade deal, if we can’t make other countries lose and become more dependent on U.S. suppliers and monopoly pricing, then we’re not going to sign an agreement. This stance is driving not only China but Russia and even Europe and other countries all out of the U.S. orbit. The end result is going to be that the United States is going to be isolated, without being able to manufacture like it used to do. It’s dismantled its manufacturing. So how will it get by?

Some population figures were released a week ago showing the middle of America is emptying out. The population is moving from the Midwestern and mountain states to the East and the West coasts and the Gulf Coast. So Trump’s policies are accelerating the de-industrialization of the United States without doing anything to put new productive powers in place, and not even wanting other countries to invest here. The German car companies see Trump putting tariffs on the imported steel they need to build cars in the United States. It built them here to get around America’s tariff barriers against German and other automobiles. But now Trump is not even letting them import the parts that they need to assemble these cars in the non-unionized plants they’ve built in the South.

What can they do? Perhaps they’ll propose a trade with General Motors and Chrysler. The Europeans will get the factories that American companies own in Europe, and give them their American factories in exchange.

This kind of split is occurring without any attempt to make American labor more competitive by lowering its cost of housing, or the price of its health insurance and medical care, or its transportation costs or the infrastructure costs. So America is being left high and dry as a high-priced economy in a nationalistic world, while running a huge balance-of-payments deficit to support its military spending all over the globe.