Describe how high-profile currency traders such as George Soros have created enormous threats to a nation's internal economic stability just by trading heavily in that nation's currency.

Explain the issues and the importance of the current currency battles between the Chinese Yuan and the U.S. dollar

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George Soros: one man who can bring a nation to its knees

A number of famous currency speculators have reached notoriety through the impact their buying and selling has had on the market, and sometimes on whole countries. The most famous currency trader is George Soros. His name strikes fear into the hearts of many governments, even one as powerful as Great Britain. Britain went through a currency crisis in 1992 and 1993 that threatened to throw the nation's economy into a recession or depression. At the time, the UK was trying to maintain a linked exchange rate with the powerful German Deutschmark and was forced to increase interest rates to protect the value of the pound. Many currency speculators didn't think the British government could get away with increasing interest rates, as it would force a considerable number of citizens into bankruptcy and drive up an already high unemployment rate.

George Soros recognized this, and became famous when he bet against the UK pound by what's known as short-selling. He borrowed more than $10 billion worth of British currency and then sold it. Seeing Soros dumping all this sterling basically sent panic signals through the world exchange markets, and the pound's value fell to low for it to continue to be in a stable exchange rate with the Mark. Soros then bought back the now devalued pounds and paid them back to the lender(s). With this speculative attack on the pound, Soros made almost one billion dollars overnight (he was able to buy the pounds back at a billion dollars less than he sold them for, and pocketed the difference). He became known as the man who broke the Bank of England.

Another of Soros's famous currency attacks was made on the Malaysian national currency during the 1997 Asian Financial crisis. Once again Soros sold short to help drive down the Malaysian currency, and the side-effect was further financial turmoil. Malaysian Prime Minister Mohammed Mahathir charged Soros with trying to destroy his country and considered treated the speculator as a dangerous enemy.

Soros has since made comments that have been interpreted as showing regret over the degree to which he made his fortune on the misfortunes of others. Some people, however, see him as a kind of vigilante currency policeman rooting out political and financial mismanagement in nations throughout the world; governments must behave or deal with Soros.

The economic war between the US and China

We now move to the complicated relationship between the United States and China. Many Americans fear China's growing economic power in the world and regret the strong role it now plays in the US economy. The US depends on China for much of its manufactured goods, and China is the fastest-growing economy in the world as of 2011. China's economy is a major world focus on currency markets and within political circles. The world's richest country, the United States, now sees China as a threat and a potential aggressor on a whole new battlefield: the economy.

China's currency unit is the RMB, or Renminbi, but Chinese money is still most commonly referred to under the old name yuan. China keeps the value of the yuan tied at a fixed rate to the US dollar (when the value of the dollar goes up, the value of the yuan goes up, and when the value of the dollar goes down, the value of the yuan goes down). One effect of this strategy is that the yuan is artificially devalued on the world market. Among other things, this is a way of encouraging other nations to import the cheap Chinese goods, promoting China's manufacturing sector. Some Westerners, however, see this artificial devaluation as an act of political and economic warfare.