Re: X-change Rate, why is it so?
But they are asking to be paid back in Yuan (instead of USD) for the US debt they hold. Why?
Because they are starting to question the current arrangement. China sends us real production ( usually cheap consumer goods but they are slowly moving more up the scale ) and they receive back little green pieces of paper. This deal works as long as those little green pieces of paper retain their purchasing power. What they and may others now see it that the only way that the US can cover its obligations is to inflate its currency or actually default on its debt.
The current system has only continued on its unstustainable path because the USD was considered the worlds reserve currency. It is a great priviledge to have your debt denominated in your own currency. We are on the brink of losing this priviledge and when that happens, the American lifestyle will take a big hit.
They might wish they could covert their current debt to yuan but I don’t think there is any way they can make that happen. What they can do is refuse to do any more trades in dollars and therefore force all future imbalances to be denominated in yuan.